U

Title:

The Role of Brand Equity in B2B:

A Comparative Cross Industrial
U

Analysis

Author:

Hooman Sabzehzar

Academic Master Thesis

KTH Royal Institute of Technology

Tutor: Professor Henrik Uggla

7th edition, 2010 - 2012

Como, June, 29th, 2012

P P

1
ABSTRACT

Many companies have exploited the power of brand equity in B2C markets as a source of
competitive advantage. The trend in B2B, however, seems to be slightly different where
many decision makers still believe that branding is not relevant to their business as it is to
B2C.

This paper investigates the role of brand equity in B2B businesses and shows how long-term
investment in brand equity can change the rules of the game radically in favor of those B2B
companies who have invested in their brand with a "holistic" approach which conform the
overall strategy of the company. Caterpillar Inc. has been chosen as the case study and the
role of its brand equity in its superior performance over its competitor, Komatsu Ltd, is
investigated. The qualitative part of the research analyses the brand associations and the
roles that these associations together with other brand elements play for Caterpillar and its
customers. The quantitative part investigates two particular areas of recovery from market
difficulties and efficiency in market communications and proves the role of higher brand
equity in superior performance in recovery from market difficulties and marketing
communications efficiency. The results are then tested further on the second case study
which compares Intel to AMD.

The results also open up new lines for further research on the subject both in depth and
breadth where suggestions are made for generalizability of the research as well as
determining the role of brand equity in companies' performances more precisely.

Key Words:

Brand Strategy, Brand Equity, Brand associations, Business to Business Markets.

2
Acknowledgments

The study owes its progress and development to Professor Henrik Uggla, branding professor
at the department of Industrial Economics and Management, KTH Royal Institute of
Technology, who supervised the study in a professional manner. He conducted the research
in the right track from the very beginning and he was always available for guidance and
support despite of his busy schedule.

Special thanks to Professor Cali Nour, the IMIM program director at KTH Royal Institute of
Technology whose kind personal support facilitated the process and made it possible to
undertake this master thesis at KTH.

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Dedication

To my parents

Nahid & Naser

4
Table of Contents

1.
1T 1T INTRODUCTION
1T 1T 8
1.1
1T 1T BACKGROUND ................................................................................................ 8
1T 1T

1.2
1T 1T THEORETICAL AND EMPIRICAL DELIMITATIONS ......... 8 1T 1T

1.3 OBJECTIVES ......................................................................................................................... 9

1T 1T

2.
1T 1T RESEARCH METHODOLOGY .................................................................. 10
1T 1T

INTRODUCTION............................................................................................................................. 10
1T 1T

2.1 RESEARCH PHILOSOPHY ....................................................................................................... 10

1T 1T

2.2 RESEARCH METHOD ............................................................................................................ 11

1T 1T

2.3 RESEARCH APPROACH ......................................................................................................... 13

1T 1T

2.4 TYPES OF RESEARCH ........................................................................................................... 15

1T 1T

2.5 CREDIBILITY........................................................................................................................ 15
1T 1T

3.
1T 1T THEORETICAL FRAMEWORK AND LITERATURE REVIEW ..................... 17
1T 1T

INTRODUCTION ......................................................................................................................... 17
1T 1T

3.1 BRAND DEFINITION ............................................................................................................... 17

1T 1T

3.2 BRAND EQUITY.................................................................................................................... 20

1T 1T

3.2.1 Brand Equity Definition ................................................................................................ 20

1T 1T

3.2.2 Customer-Based Brand Equity Concept ....................................................................... 21

1T 1T

3.2.3 Building Strong Brand Equity ....................................................................................... 24

1T 1T

3.2.4 Valuing and Measuring Brand Equity ............................................................................ 28

1T 1T

3.3 BRAND EQUITY IN B2B MARKETS ........................................................................................... 30

1T 1T

3.3.1 Background of branding in B2B .................................................................................... 30

1T 1T

3.3.2 B2B Markets ............................................................................................................... 31

1T 1T

3.3.3 B2B Brand Relevance ................................................................................................. 35

1T 1T

4. EMPIRICAL ANALYSIS ......................................................................................................... 41

1T 1T

4.1 INTRODUCTION .................................................................................................................... 41

1T 1T

4.1.1 Introduction to Interbrand............................................................................................. 41

1T 1T

4.2 COMPANY BACKGROUND ...................................................................................................... 43

1T 1T

4.3 CATERPILLAR INC. BRANDS ................................................................................................... 46

1T 1T

4.4 ELEMENTS OF CATERPILLAR BRAND EQUITY ............................................................................ 49

1T 1T

4.4.1 Brand awareness ........................................................................................................ 49

1T 1T

4.4.2 Brand Associations ..................................................................................................... 50

1T 1T

4.4.3 Brand Affiliations ......................................................................................................... 53

1T 1T

4.5 THE ROLE OF BRAND EQUITY IN B2B: A COMPARATIVE QUANTITATIVE ANALYSIS ........................... 55
1T 1T

4.5.1
1T 1T Caterpillar vs. Komatsu ........................................................ 56 1T 1T

4.5.2 Intel vs. AMD .............................................................................................................. 62

1T 1T

5.
1T 1T CONCLUSIONS AND MANAGERIAL IMPLICATIONS ............................... 65
1T 1T

6.
1T 1T LIMITATIONS AND SUGGESTIONS FOR FURTHER RESEARCH ............. 66
1T 1T

7.
1T 1T REFERENCES
1T 1T 68
8.
1T 1T APPENDICES
1T 1T 70

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6
TABLE OF FIGURES

FIGURE1 INDUCTION V.S DEDUCTION APPROACH .............................................................................. 13

1TU U1T

FIGURE2 QUANTITATIVE AND QUALITATIVE RESEARCH ....................................................................... 14

1TU U1T

FIGURE 3 TYPES OF RESEARCH....................................................................................................... 15

1TU U1T

FIGURE4 THE ROLES OF BRANDS ................................................................................................... 18

1TU U1T

FIGURE 5 THE BRAND ON A BRICK AND THE ACME'S BIGGEST BRICK IN THE WORLD ACCORDING TO GUINNESS
1TU

BOOK. ................................................................................................................................. 19
U1T

FIGURE6 ASSOCIATED NETWORK MEMORY MODEL- APPLE ASSOCIATIONS ............................................. 22

1TU U1T

FIGURE 7 BRAND KNOWLEDGE ILLUSTRATION .................................................................................... 23

1TU U1T

FIGURE8 ADVANTAGES OF BUILDING STRONG BRAND EQUITY .............................................................. 24

1TU U1T

FIGURE9 BRAND BUILDING MODEL .................................................................................................. 26

1TU U1T

FIGURE 10 BRAND ASSOCIATION BASE MODEL ................................................................................... 27

1TU U1T

FIGURE11 POTENTIAL PARTIES INVOLVED IN A BUYING CENTER .......................................................... 33

1TU U1T

FIGURE 12 HOLISTIC VIEW OF FORCES INFLUENCING PURCHASING PROCESS THROUGH BUYING CENTER ..... 34
1TU U1T

FIGURE13 IMPORTANCE OF BRAND FUNCTIONS IN B2C VS. B2B .......................................................... 37

1TU U1T

FIGURE14 FACTORS BOOSTING BRAND RELEVANCE .......................................................................... 38

1TU U1T

FIGURE15 BRAND RELEVANCE IN BUYING STAGES ............................................................................ 38

1TU U1T

FIGURE16 BRAND ROLES FOR COMPANIES AND CUSTOMERS .............................................................. 40

1TU U1T

FIGURE17 INDUSTRIES AND THE NUMBER OF BRANDS EVALUATED IN EACH INDUTRY ............................... 42
1TU U1T

FIGURE18 DIVERSIFIED CATEGORY CONSIDERED FOR EVALUATION BY INTERBRAND ............................... 42

1TU U1T

FIGURE19 CATERPILLAR INDUSTRIES, GEOGRAPHICAL SPREAD AND KEY TRENDS OVER FIVE YEARS .......... 44
1TU U1T

FIGURE20 COMPANY'S VALUES IN ACTION, BUSINESS MODEL AND VISION FOR 2020 ............................... 45
1TU U1T

FIGURE21 OVERVIEW OF COMPANY'S STRATEGY AND ITS ELEMENTS .................................................... 46

1TU U1T

FIGURE22 CATERPILLAR PARENT BRAND (CORPORATE LOGO) ............................................................ 47

1TU U1T

FIGURE23 CATERPILLAR BRAND PORTFOLIO BASED ON BRAND RELATIONSHIPS SPECTRUM ...................... 49

1TU U1T

FIGURE24 CATERPILLAR BRAND EXTENSION INTO B2C ...................................................................... 52

1TU U1T

FIGURE 25 COMPANY SPONSORSHIPS .............................................................................................. 53

1TU U1T

FIGURE 26 A HOLISTIC MODEL FOR FUNCTIONS OF CATERPILLAR'S BRAND ASSOCIATIONS......................... 55

1TU U1T

FIGURE 27 OVERVIEW OF CATERPILLAR BRAND VALUE OVER 10 YEARS ................................................. 56

1TU U1T

FIGURE 28 COMPARISON OF BRAND VALUES ..................................................................................... 57

1TU U1T

FIGURE 29 DATA ON CATERPILLAR& KOMATSU ................................................................................. 57

1TU U1T

FIGURE30 REVENUE BASED RECOVERY FROM THE FINANCIAL CRISIS .................................................... 58

1TU U1T

FIGURE 31 PERCENT OF CHANGE IN REVENUE BEFORE AND AFTER 2008 ............................................... 58

1TU U1T

FIGURE 32 AVERAGE OF CHANGE IN REVENUE BEFORE AND AFTER FINANCIAL CRISIS ............................... 59
1TU U1T

FIGURE 33 DATA ON REVENUES AND MARKETING INVESTMENTS ........................................................... 60

1TU U1T

FIGURE 34 GRAPHIC DEPICTION OF DATA IN FIGURE 32 ....................................................................... 61

1TU U1T

FIGURE 35 DATA ON INTEL AND AMD .............................................................................................. 63

1TU U1T

FIGURE 36 TREND ON REVENUES OF INTEL AND AMD......................................................................... 63

1TU U1T

FIGURE 37 AVERAGE OF PERCENTAGE OF CHANGE IN REVENUES OVER TWO PERIODS.............................. 64

1TU U1T

7
1. Introduction
1.1 Background

The Marketing as a "discipline" had its origins in the early 20th century as an offspring of
P P

Economics. Later on, in 1930s, Branding emerged as a discipline. It is believed that it was
Neil McElroy who in 1931 changed the marketing forever by writing the classic memo at
Procter and Gamble (P&G) which led to creation of brand management as a discipline
(Aaker, 2000). The memo suggested that a brand management team should be responsible
for creating a brand's marketing program and coordinating it with sales and manufacturing.

Ever since, brand management has been subject to significant attention of numerous
scholars in a wide variety of disciplines from psychology to economics and strategy.
However, while the added value of a brand is widely accepted in the business-to-consumers
(B2C) domain and there has been a considerable amount of research identifying and
measuring brand equity, less attention has been paid to business-to-business (B2B) markets
and one can see obvious imbalance between the amounts of literature existed in business-
to-consumers and that of business-to-business markets.

One explanation to the question why branding in business-to-business markets has received
relatively little attention in the academic literature suggests that it is due to a belief that
industrial buyers are unaffected by the emotional values corresponding to brand. This paper
aims to explore if the role of brand equity is different in B2B from that of B2C in the context
of the following themes:

Industrial brand equity

B2B brand benefits
The role of B2B in decision making process

By undertaking this research the author hopes to add to the body of knowledge in brand
management and to provide outlines for further research.

1.2 Theoretical and Empirical Delimitations

Theoretical framework for this thesis will consist of fundamental theories on brand equity and
business-to-business marketing which have constituted the "Brand Discipline" in general and
"brand equity" in particular mainly in the form of books written by leading marketing and
brand professors and theoreticians, David Allen Aaker, Kevin Lane Keller and Philip Kotler
as well as researches and articles in the subjects of marketing and branding, business and
management, psychology and social sciences mainly from three prestigious resources,
Emerald, Elsevier and Jstore, available through KTH Bibliotek. Particular attention will be
paid to the opinions of industry leaders, managers and consultants in the area of brand
equity in B2B markets from secondary resources. In case of particular need to any empirical
data in further stages of the research, industry expert opinions will be collected through in-
depth interviews.

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Within the subject "branding", this paper will limit its exploration into the brand equity and its
links to business-to-business markets in all relevant aspects. However, an analysis of
business-to-consumer markets and brand equity will be inevitable since it will provide a great
point of reference and insight into the implications of brand equity in business-to-business
markets.

The paper will not limit its analysis into a particular industry thus in that sense it will be a
cross-industry analysis. However, for the sake of practicality and convenience, only
industries with the most available data and those which are subject to particular interest of
researchers will be subject of focus in the form of case studies.

1.3 Objectives

The objective of this dissertation is to in depth analyze the role of brand equity in business-
to-business markets and decision making processes and its implications for marketing and
brand managers.

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2. Research Methodology

Introduction
In this chapter research methodology will be reviewed thoroughly through existing literature
and theories. Then at the end of each section the choice of the research and its relevance to
the theory and nature of the research will be explained. The chapter opens up with different
research philosophies including ontology and epistemology paradigms. The researcher
believes these paradigms were important to be discussed since they shape the view of
researcher to the world and consequently determine his choices of research philosophy and
research methodology. The chapter will then continue with different research approaches,
research methods and types of research in order to justify the choices of the researcher in
comparison with existing alternatives. Finally, credibility and validity issues will be addressed
to make sure of the quality of the research.

2.1 Research Philosophy

When undertaking research of this nature, it is necessary to consider different research
philosophies and paradigms and matters of ontology and epistemology. The relevance of
research philosophies to be discussed here, although in short, is that they shape beliefs,
perceptions, assumptions and nature of reality and truth and so they can influence the way
research is undertaken and subsequently influence or alter its conclusions. Blaikie (1993)
argues that these aspects are highly relevant to social science which justifies why these
philosophies are relevant to this paper given the nature of brand discipline which has to do a
lot with human perceptions, psychology and social sciences.

Ontology describes our view on the nature of reality questioning if it's an objective reality that
really exists (objectivism) or only a subjective reality, create in our minds. To illustrate the
point, Hatch and Cunliffe (2006) use the example of a workplace report asking one to
question whether it describes what is really going on, or only what the author thinks is going
on.

Epistemology is closely coupled with ontology. While ontology considers what constitutes
reality, epistemology considers views about the most appropriate ways of enquiring into the
nature of the world (reality) and "what is knowledge and what are the sources and limits of
knowledge" (Eriksson and Kovalainen, 2008). In short, epistemology is about "knowing how
you can know" (Cunliffe, 2006). Questions of epistemology begin to consider the research
method and how knowledge can be produced and argued for.

Given the inter-dependent relationship between ontology and epistemology, if the researcher
holds certain ontological assumptions and/or positions, it may influence epistemological
choices and subsequently affect the conclusion drawn. Alike ontology, both objective and
subjective epistemological views exist. Eriksson and Kovalainen (2008) describe the
objective epistemology as presuming that a world exists that is external and theory neutral,
whereas from a subjective epistemological point of view, no access to the external world
beyond our own observations and interpretations is possible. As conclusion for the purpose
of this paper, certain researchers therefore suggest that data collected from objects that
exist separate to the researcher is less open to bias and therefore more objective.

10
Blaikie (1993) also argues that since many of researches, particularly social science related
researches, involve so many choices, the opportunity for researchers values and
preferences to influence the process makes it difficult to ultimately achieve true objectivity. In
other words, although the outcome may be delivered in quantity as an objective fact, there
may have been enough subjectivity involved in gathering and interpreting data that question
pure objectivity.

These insights and discussions lead us to the next area for consideration which is called
"research paradigm" or "research method".

2.2 Research Method

Research method is the last piece of the puzzle which makes the "trilogy" of research
philosophy by completing the interrelationship between ontology (what is the nature of
reality), epistemology (what can be known) and method ( how can a researcher discover
what he or she believes can be known).

Shih (1998) lists four areas of consideration when deciding on a research method:

The philosophical paradigm and goal of the research

The nature of the phenomenon of interest
The level and nature of research questions
Practical considerations related to research environment and the efficient use of
resources.

Proctor (1998) also suggests that before any decision on research method can be made, an
understanding of the two extremes of research philosophy i.e. positivism and post-
positivism (also known as "phenomenological"), need to be explored and understood.

What could be described as the traditional scientific approach to research has its roots in
positivism. Positivism can be defined in many ways. Smith (1998) defines positivism as
"Positivist approach assumes things can be studied as hard facts and the relationship
between these facts can be established scientific laws. Such laws have the status of truth
and social objects can be studied in much the same way natural objects".

The basic reasoning of positivism assumes that an objective reality exists which is
independent of human behavior and is therefore not a creation of the human mind.

The general elements of positivism have a number of implications that follows:

Methodological: All researches should be quantitative

Causality: the aim of research should be to identify causal explanations
Reductionism: problems are better understood if they are reduced to the simplest
possible elements.

A major criticism of the positivism is that it does not provide the mean to examine human
beings and their behaviors in an in-depth way. Humans are not objects and are subject to
many influences on behavior, feelings, perceptions and attitudes that positivists would reject
as irrelevant and belonging to the realms of metaphysics. Critics of the positivist approach

11
argue that it yields useful but limited data that only provides a superficial view of the
phenomenon it investigates (Bond 1993, Moccia 1998, Payle 1995).

It is particularly important for the purpose of this paper since branding is strongly associated
with intangibles such as image, emotional associations, feelings, perception and attitudes.

Following the search for an alternative view on the research methodology, post-positivism
emerged and was supported by prominent scholars such as Karl Popper (1959) stating that
reality is not a rigid thing existed in a vacuum but its composition is influenced by its context
and many constructions of reality therefore are possible (Hughes 1994).

Philips (1990) suggests that post-positivism is concerned with establishing and searching for
evidence that is valid and sound proof for the existence of phenomena.

However, there are criticisms to post-positivism as well. Mays and Pope (1995) summarize
the main criticisms as:

Qualitative research is an assembly of anecdote and personal impressions, and

therefore subject to bias
Qualitative research lacks reproducibility
Qualitative research lacks generalisability

Among these two debates on quantitative or qualitative research method, there are realists
who suggest that natural and social sciences are different and that social reality is pre-
interpreted, however, science must be empirically based, rational and objective. Therefore,
social objects must be studied scientifically as social objects and not simply through
language and discourses. Realism takes the view that researching from different angles and
at multiple levels will all contribute to understanding since reality can exist on multiple levels
(Chia, 2002).

To summarize the reviews of research paradigms/ research methods, while quantitative

research methods (positivistic philosophies) and qualitative methods (post-positivistic
philosophies) are often seen as opposing and polarized views, they are frequently used in
conjunction. The distinction between the two is overstated and triangulation of methods in
current day research is common (Polit et al 2001).

Regarding the above discussions, we can see that the choice of approach may be
dependent on the context of the study and the nature of the questions being asked. As for
this paper, the researcher takes a realist position in order to combine reliability of
quantitative scientific research and multi-dimensionality of qualitative analysis. Regarding the
interpretation and conclusions, however, greater levels of subjectivism will help preventing
overstatements and false generalisability of the results.

12
2.3 Research Approach

According to a traditional logic, arguments can be either inductive or deductive. So too

researches can be identified as belonging to one of two approaches- a deductive (or "top-
down") approach or an inductive (or "bottom-up) approach. The two methods differ in that
deductive research works from the general to the specific (it is knowledge-driven) whereas
inductive research works from specific observations to broader generalizations or theories (it
is feature-detecting).

The reasons for using either of these approaches are varied but usually stems from
epistemological concerns or from the nature of research questions. Therefore, based on
ontological and epistemological ground, there could be hypothetico-deductive approach or
qualitative inductive approach.

Deductive Inductive
General ideas Particular
situation

Particular
situation General ideas

Deductive research moves from Inductive research moves from

general ideas/theories to specific particular situations to make or
particular & situations: the infer broad general ideas/theories.
particular is deduced from the
general, e.g. broad theories.

Figure1 Induction vs. Deduction approach

In the deductive tradition the researcher starts "with an abstract, logical relationship among
concepts then moves towards concrete empirical evidence" (Neuman 1997). The advantage
of this approach is that it enables the researcher to make use of previous works of others.
However, its limitations are:

It is only possible to determine whether or not, or to what extent, the hypothesized

relationship exists
It does not help indentifying what other unanticipated factors may exist
It misses the opportunity to enrich data which can be provided as a conversation
develops in a more unstructured setting

13
On the other hand, the term "qualitative" is an umbrella term which covers a variety of
techniques. "a qualitative researcher begins with a research question and little else" but
"begins with detailed observations of the world and moves towards more abstract
generalizations and ideas" (Neuman 1997:334).

Deshpande (1983) concludes that an area of differentiation between the qualitative and
quantitative paradigms is that in the quantitative paradigm research is "ungrounded,
verification-oriented, confirmatory, reductionist, inferential and hypothetico-deductive" whilst
the qualitative research paradigm is "grounded, discovery oriented, exploratory,
expansionist, descriptive and inductive".

Practically speaking, an important distinction between the two approaches is that

hypothetico-deductive method focuses on variables whilst qualitative method focuses on
constructs.

Despite of these fundamental differences in these two approaches, some scholars argue
that researchers can combine elements of both approaches in an epistemologically
consistent way: "although the qualitative and quantitative approaches are polar opposites, it
should be kept in mind that individuals researchers in all areas, including marketing, fall
somewhere along the continuum between the two extremes" (Deshpande 1983:104).

So it suggests that there may be situations in which management and marketing researchers
would like to make use of existing theory, however, they may also see research developing
rather than testing theory, in which case the data need to be gathered on an
inductive/qualitative basis (see figure2).

Quantitative Qualitative

The emphasis of Quantitative Qualitative research is more

research is on collecting and
analysing numerical data; it
concentrates on measuring the
scale, range, frequency etc. of
phenomena.
subjective in nature than
Quantitative research and involves
examining and reflecting on the less
tangible aspects of a research
subject, e.g. values, attitudes and
perceptions.

Figure2 Quantitative and Qualitative research

This research will be inductive in orientation although using combined elements of both
approaches will be not only inevitable, but also enriching.

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2.4 Types of Research

Literature review suggests four different types of research as Exploratory, Descriptive,

Analytical and Predictive. Collins & Hussey (2003) explain characteristics of each type as
follows:

Exploratory Descriptive Analytical Predictive

Exploratory research is Descriptive research Analytical research The aim of Predictive
undertaken when few or can be used to identify often extends the research is to
no previous studies exist. and classify the Descriptive approach speculate intelligently
The aim is to look for elements or to suggest or explain on future possibilities,
patterns, hypotheses or characteristics of the why or how based on close
ideas that can be tested subject, e.g. number of something is analysis of available
and will form the basis days lost because of happening, e.g. evidence of cause and
for further research. industrial action. underlying causes of effect, e.g. predicting
industrial action. when and where future
Typical research Quantitative industrial action might
techniques would include techniques are most An important feature take place
case studies, observation often used to collect, of this type of research
and reviews of previous analyze and is in locating and
studies and data. summarize data. identifying the
different variables
involved.
Figure 3 Types of research

2.5 Credibility

Credibility is defined as composed of elements the most important of which are reliability,
validity and presence of ethics. Saunders et al., (2007) suggest the following definitions:

Reliability: Is the extent to which the data collection techniques or analysis procedures will
yield consistent findings.

Validity: Is concerned with whether the findings are really about what they appear to be
about.

A right methodology consistent with the nature and objectives of the research would play a
critical role in credibility of the research findings. To prove credibility, methodological
approach of this paper may reflect a logical flow between different aspects of the above
mentioned theories. Such methodology should provide consistency in theory and
appropriateness to the nature of the research.

As for the research philosophy, objectivity needs to be appreciated since science is

generally defined as objective and deterministic. However, the writer believes that a pure
objective approach may not provide a comprehensive explanation of all aspects of a

15
phenomenon. Particular to the subject of this research, branding, it is a complicated multi-
faceted phenomenon with strong roots in intangible aspects such as emotions, feelings,
personal beliefs and preferences, attitudes, loyalty etc. which has to do with "difficult to
predict" human behavior. Moreover, the writer doesn't believe that there is one and only
objective "truth" to be discovered. But there are different versions of phenomena each needs
to be considered in its own context. This view is also supported by recent "non- determinism"
theories developed in the field of quantum physics which reject the current beliefs about
objectivity and suggest that no single reality exists separate from the observer.

Therefore, as for materiality to this paper, position of the researcher from ontological and
epistemological perspective is Realism. Thus as we accept the value of objectivity for more
reliable and less biased conclusions it brings about, we may admit presence of an
epistemologically subjective theme throughout the process mainly in concluding and
interpreting the results in order to be prudent enough not to make false conclusions.

As a consequence of this epistemological choice, and according to the nature of the

research, although an inductive method is adopted to help move from the research subject
to more general conclusions with detailed observations, but the research won't hesitate to
make particular and specific conclusions if it reached any. With the same reasoning, the
qualitative theme of the research may not limit the research to only qualitative data since
many relevant quantitative data will also be used from secondary resources available to
support conclusions.

Also the research will be exploratory in approach which is the right fit to the qualitative-
inductive method and will provide more room for case study and previous data analysis.

Sources of secondary data will be all kind of available and valid on-line and printed sources
such as periodicals, journals, magazines, articles, books etc. together with companies'
publicly available data, interviews and case studies. Primary sources may be used if
necessary, in form of interviews with managers or industry experts. However, the nature of
data collection methods and target companies or industries, if any, are not decided yet since
the exploratory nature of the study implies that the research will correct its direction
constantly as it progresses.

Apart from choosing the right methodology and reliable sources of data, the fact that the
researcher has no stake neither in the research and its outcome nor in the industries or
companies to be studied, makes sure of an unbiased and ethical analysis which adds to the
credibility issue.

All these tools are meant to help the research to add to the existing body of knowledge of the
subject: "The role of brand equity in business-to-business markets".

16
3. Theoretical Framework and Literature Review

Introduction
In this chapter fundamental concepts relevant to this paper such as branding, brand equity,
brand building and brand valuing models as well as B2B markets and their characteristics
such as purchasing process, buyer-customer relationships and brand relevance will be
reviewed thoroughly. This literature review follows three main purposes. The first is to find
out similarities in other works and use the information to enrich the paper. The second is to
provide enough insight for the reader to follow the paper easier even if he/she is not familiar
enough with branding. And the third is to provide a foundation for empirical and analysis
part. The main sources of literature to review will be scientific articles and published works in
the field of marketing and branding with particular focus on the works of David Aaker, Kevin
Keller and Philip Kotler who are widely known as gurus of marketing and branding.

3.1 Brand definition

Branding is not a new concept and has been around for centuries. In fact, the word brand is
derived from the Old Norse word brandr, which means "to burn" as brands were and still are
the means by which owners of livestock mark their animals to identify them (Keller 2003; p3).

A brand, as we know today, can be defined as "a name, term, sign, symbol, or design, or
combination of them which is intended to identify the goods and services of one seller or
group of sellers and to differentiate them from those of competitors" (Kotler 1991; p.442).
These individual brand elements are called "brand identities" and their totality is called as
"the brand".

Kotler (2001) asserts that a brand is an intangible concept. It is not a name or logo only.
To simplify and to make it easy to grasp, marketers equate it with the more tangible
marketing communication elements that are used to support it such as logos, advertising,
taglines etc. but a brand goes beyond that:

A brand is a promise.
A brand is the totality of perceptions- everything you know, see, hear, think and feel etc.-
about a product or service or an organization.
A brand holds a distinctive position is consumer's mind based on past experience,
associations and future expectations.
A brand is a shortcut of attributes, benefits, values and beliefs which differentiate, reduce
complexity and simplify the decision making process.

A brand therefore is a shorthanded that summarizes a person's feelings toward a

business or a product.

17
Why do brands matter?

Keller 1 (2003) mentions several roles that brands play from both consumer and firm
P0F P

perspectives which are reflected in figure4 as follows:

Brand Roles
Consumers' perspective
Identification of source of product
Assignment of responsibility to product maker
Risk reducer
Search cost reducer
Promise, bond or pact with maker of product
Symbolic device
Signal of quality

Manufacturers' perspective
Means of identification
Means of legally protecting unique features
Signal of quality level to satisfied customers
Means of endowing product with unique associations
Source of competitive advantage
Source of financial returns

Figure4 The roles of brand

Among these items risk reduction plays an important role both in B2B as well as in B2C
markets. Keller identifies several types of risks that consumers encounter in product
purchase decision making process which brands can reduce. These risks are:

Functional risk: The product does not perform up to expectations

Physical risk: The product poses a threat to the physical well-being or health of the
user or others
Financial risk: The product is not worth the price paid
Social risk: The product results in embarrassment from others
Psychological risk: The product effects the mental well-being of the user
Time risk: The failure of the product results in an opportunity cost of finding another
satisfactory product

As for the firms' perspectives, financial issues are the most important ones. There are many
examples which illustrate importance of brands a couple of which follows:

1
Kevin Lane Keller (23 June 1956) is the E. B. Osborn Professor of Marketing at the Tuck School of
Business at Dartmouth College. He is most notable for having authored Strategic Brand Management
(Prentice Hall, 1998, 2002 & 2008), a widely-used text on brand management.

18
 American food and tobacco manufacturer Philip Morris bought Kraft for 12.9 billion
USD, more than four times book value for tangible assets.
Nestle acquired Rowntree (home to Kit Kat, After Eight and Polo mints) for 4.5 billion
USD, more than five times its book value.

These examples illustrate the price premium paid for the brands which is justified by future
expectations of cash flows to be generated from those brands.

One last note on importance of brands could be the investigation done by BBDO Consulting
Germany (2005) which shows that companies with strong brands have recovered
significantly faster from the "stock markets slumps" such as 9/11 attacks than weaker brands
(Kotler, 2006).

Can anything be branded?

Whenever and wherever consumers are deciding between alternatives, brands can play
important roles in decision making processes. Brands can even be applied in commodity
markets. A commodity is defined as a product presumably so basic that it cannot be
physically differentiated in the mind of consumer. That's where brand can be applied to
differentiate. Over the years, a number of products once seen as essentially commodities
have become highly differentiate as strong brands. Some notable examples are:

Bath soap (Ivory), coffee (Maxwell House), flour (Gold Medal), salt (Morton), bananas
(Chiquita), Pineapples (Dole) and even water (Perrier).

Acme Brick is a perfect example of how to brand a commodity. The Texas-based company
has managed to brand its bricks very successfully by targeting home owners as well as
architects. Acme not only provides very high quality bricks but also guarantees its bricks
over 100 years, while the norm in the industry is 5 years only and by doing so charges 10
percent price premium over its competitors.

A telephone survey of homeowners in four main markets of Acme in 1998 revealed 84% of
preference for Acme bricks which left all of the competitors far behind.

The Biggest brick

of the world made
by Acme in July 4thP P

2006 in 116th Acme

P P

anniversary.
Figure 5 The brand on a brick and the Acme's biggest brick in the world according to Guinness Book.

19
3.2 Brand Equity

3.2.1 Brand Equity Definition

Born in the 1980s, concept of brand equity has aroused deep interests among marketing
managers, business strategists, researchers and academics. For its important role in the
business today, significant research efforts has been channeled into defining, building,
measuring and valuing strong brand equity. The financial community has also placed
remarkable prices on the value of successful brands, treating them as intangible assets with
the potential to grow in value rather than depreciate.

There have been two general motivations for studying brand equity:

Financially-based motivations to estimate the value of a brand for accounting

purposes or for mergers & acquisitions and divestiture purposes.

Strategy-based motivations to improve marketing productivity and efficiency of

marketing expenditures.

Brand equity has been viewed from variety of perspectives. In this paper, we will review
definitions and models offered by some prominent idea generators and gurus of marketing
and branding discipline. But first, let's take a look at the definition of "brand" itself.

David Aaker 2, defines brand equity as consumer perception of the value added to the
P1F P

functional product or service through association with the brand name. From financial point
of view, "a company may view it as future discounted value of the profit stream that can be
attributed to the price premium or enhanced loyalty generated by the brand name. From a
managerial perspective, it is a set of assets-including brand awareness, brand loyalty,
perceived quality and brand associations- that are attached to a brand name or symbol"
(Aaker, 1991).

"A product is something made in a factory; a brand is something that is bought by a

customer. A product can be copied by a competitor; a brand is unique. A product can be
quickly outdated; a successful brand is timeless". Stephen King WPP Group, London.

Introduced by Procter&Gamble in the 1880s, Ivory soap is a prime example of creating and
sustaining brand equity as we know today. The soap's brand name, along with its distinctive
wrapping and the aggressive 1882 national advertising budget of 11,000 USD provided a
start toward high brand awareness.

Aaker also suggests that brand equity is a set of brand assets and liabilities linked to a
brand, its a name and a symbol that adds to or subtracts from the value provided by a
product or service to a firm and/or to that firm's customers. For assets or liabilities to underlie
brand equity, they must be linked to the name and/or symbol of the brand. According to
Aaker, the assets and liabilities on which brand equity is based can be grouped into five
categories:

2
David Allen Aaker (born1938), consultant and author in the field of marketing and brand strategy,
currently Professor Emeritus at the Haas School of Business, University of California, Berkeley.

20
 1. Brand loyalty
2. Name awareness
3. Perceived quality
4. Brand associations
5. Other proprietary brand assets-patents, trademarks, channel relationships, etc.

3.2.2 Customer-Based Brand Equity Concept

Keller (1993), offers a definition for brand equity from the perspective of the consumer-
whether it be individual or an organization- and also presents a useful model to
conceptualize, measure and manage brand equity called "customer-based brand equity"
(CBBE).

According to Keller, customer-based brand equity is defined as "the differential effect of

brand knowledge on consumer response to the marketing of the brand". That is CBBE
involves consumers' reactions to any change to an element of marketing mix for the brand in
comparison with their reactions to the same element attributed to an unnamed version of the
same product or service. In this model, brand knowledge is the key to creating brand equity
because it creates differential effect that drives brand equity.

The advantage and importance of conceptualizing brand equity form customer's perspective
is that it enables marketing managers to evaluate how their marketing program improves the
value of their brands.

Keller's model and concept is based on definition of brand knowledge through the lens of
associative models used in cognitive psychology such as "associative network memory
model". These associative models view semantic memory or knowledge as consisting of a
set of nodes and links. Nodes are stored information connected by links that vary in strength.
A node becomes potential source of activation for another node based on the strength of
the links (associations) between them. When this association (link) is strong enough,
activation of another node could result in information to be retrieved from the node. For
example, considering a soft drink purchase, a consumer may think of Coca Cola for its
strong association with the product category.

Consistent with the associative network memory model, brand knowledge is conceptualized
here as consisting of a brand node in memory with a variety of associations linked to it. For
example, consider Apple computers. Figure (6) shows some commonly mentioned
associations that consumers hold in their minds about the brand.

21
 User friendly

Creative Fun

Innovative Apple Apple logo

Educational Graphics

Macintosh

Figure6 Associated network memory model- Apple associations

According to Keller, the relevant dimensions that distinguish brand knowledge (equity) are
brand awareness and brand image.

Brand awareness: is related to the strength of the brand node or trace in memory
thus, it is the likelihood that a brand name comes to mind of the customer and it
consists of brand recognition and brand recall:
Brand recognition: consumer's ability to confirm prior exposure to the brand when
given the brand as a cue.
Brand recall: consumer's ability to retrieve the brand name when given the product
category.

Brand image: is defined as perceptions about a brand as reflected by the brand

associations held in consumer's memory.
The favorability, strength and uniqueness of brand associations are distinguishing
dimensions of brand knowledge.
Strength of brand associations: associations will vary in the strength of their
connection to the brand node and is a function of both quantity and quality of
processing that information receives.
Favorability of brand associations: are those associations that are desirable to
consumers and convince the consumer that the brand possesses relevant attributes
and benefits.
Uniqueness of brand associations: are associations that provide "unique selling
propositions" and "points of difference" which differentiate product or service from the
others.

22
 Brand associations can fall into three major categories of attributes, benefits and
attitudes.

Attributes: are those descriptive features that characterize a product or service.

Benefits: are personal values that consumers attach to the product or service
attributes.
Attitudes: are consumers overall evaluations of a brand. Brand attitudes are
particularly important because they often form the basis for consumer behavior.

Based on the above theoretical framework, "a brand is said to have positive (negative)
customer-based brand equity if consumers react more (less) favorably to the product, price,
promotion or distribution of the brand than they do the same marketing mix element when it
is attributed to a fictitiously named or unnamed version of the product or service" (Keller
1993; p8).

Therefore, high levels of brand awareness and a positive brand image should increase the
probability of a brand choice, as well as produce greater consumer loyalty and decrease
vulnerability to competitive marketing actions.

Brand Price
Recall
Brand Packaging
Awareness Non product related
Brand
Recognition User Imagery
Attribute Product
Brand Usage Imagery
knowledge Types of Brand Benefits Function
Association
Experimental
Favorability of Attitudes
Brand Symbolic
Brand Associations
Image

Strength of Brand
Associations

Uniqueness of
Brand Associations

Figure 7 Brand knowledge illustration

23
The advantages of focusing on building strong brand equity according to Keller are
summarized in figure (8).

Improved perceptions of product performance

Greater Loyalty
Less vulnerability to competitors' marketing actions
Less vulnerability to marketing crises
Larger margins
More inelastic consumer response to price increases
More elastic consumer response to price decreases
Greater trade cooperation and support
Increased marketing communication effectiveness
Possible licensing opportunities
Additional brand extension opportunities

Figure8 Advantages of building strong brand equity

Keller also offers two methods to measure customer-based brand equity. The indirect
approach to assess potential sources of brand equity by measuring brand knowledge (i.e.,
brand awareness and brand image) and the direct approach to measure brand equity by
assessing the impact of brand knowledge on customer response to different elements of
marketing program. These two methods are complementary and should be used together.

3.2.3 Building Strong Brand Equity

To build strong brand equity, it is crucial in the first place, to make sure that brand strategy is
a match with the corporate strategy. If there are any misalignments, it will soon be spotted,
first by employees, and then by customers.

Based on CBBE concept, Keller (2003) explains how a strong brand is built or created.
According to this model brand building consists of four steps the success of each depends
on the previous one. These four steps are as follows:

1) Identification of the brand with customers and association of brand in customer's

mind.
2) Establishment of totality of brand in customer's mind by linking tangible and
intangible associations with certain properties.
3) Elicit the proper customer responses to brand identification and brand meaning.
4) Convert this response to a reliable loyalty relationship between the brand and the
customers.

24
These four steps represent the following set of fundamental questions that consumers ask
about brands (with corresponding brand steps in parentheses):

1. Who are you? (brand identity)

2. What are you? (brand meaning)
3. What about you? What do I think or feel about you? (brand responses)
4. What about you and me? What kind of association and what kind of connections
would I like to have with you? (brand relationships)

This four-step performance is called "branding ladder" for the ordering of its steps which
should follow after successful implementation of the previous step.

Performing these four steps is a complicated and difficult process. To provide some
structure, Keller proposes a sequentially establishing six "brand building blocks". These
blocks can be assembled in a "brand pyramid". Creating strong brand equity involves
reaching the top of the CBBE pyramid will only occur if the right building blocks are put into
place. Figure 9 shows the CBBE pyramid and corresponding brand building steps. The
corresponding brand steps represent different levels of the CBBE pyramid. Here are the six
blocks:

Brand Salience: relates to aspects of the awareness of the brand. For example, to what
extent is the brand top-of-mind and easily recalled or recognized?

Brand Performance: relates to the ways in which the product or service attempts to meet
customer's more functional needs. Thus, it refers more to intrinsic properties of the brand.
There are five important types of attributes and benefits that underlie brand performance:

1. Primary ingredients and supplementary features

2. Product reliability, durability and serviceability
3. Service effectiveness and efficiency
4. Style and design
5. Price

Brand Imagery: refers to more intangible aspects of the brand and deals with the extrinsic
properties and how they meet customer's psychological and social needs. Important
intangible categories that can be linked to the brand are:

-User profiles
-Purchase and usage situations
-Personality and values
- History, heritage and experiences

Brand Judgments: focus on customer's personal opinions and evaluations of the brand.
Brand judgments involve how customers combine all the different performance and imagery
associations and form opinions about the brand. There are four types of brand judgments
particularly important for creating a strong brand:

Quality, Credibility, Consideration and Superiority.

25
Brand feelings: are customers' emotional responses and reactions with respect to the
brand. How does the brand affect customers' feelings about themselves and their
relationship with the others? These feelings can be mild or intense and can be positive or
negative. The following are six important types of brand-building feelings:

Warmth, Fun, Excitement, Security, Social approval, Self-respect

Brand Resonance: refers to the nature of the "ultimate relationship" and level of
identification that the customer has with the brand and the extent to which customers feel
they are "in sync" with the brand. Brand resonance can be broken down into four categories:

1. Behavioral loyalty
2. Attitudinal attachment
3. Sense of community
4. Active engagement

Brand Loyalty

4. Relationships
Brand What about you and me?
Resonance
Positive Reactions

3. Response
Customer Acceptance Cycle

What about you?

Brand Brand
Judgments Feelings
Points of difference

2. Meaning
Brand Brand What are you?
Performance Imagery
Brand Awareness

1. Identity
Brand Salience Who are you?

Figure9 Brand building model

One should take into consideration that this model suggests building brand equity from the
base. Brands can also enter into alliances and co-branding strategies to leverage brand
equity instead of creating everything from the scratch.

26
Uggla. H 3 suggests the "brand association base" model as a strategic model for exchange of
P2F P

meaning (equity) between brands. The brand association base offers a novel semiotic
description of how secondary brand associations and mature brand equity can be shared,
leveraged and borrowed, as opposed of being built up from the bottom line and is defined
as:

"The brand associations managed by a leader brand (category), extended through identity
transfer or leveraged through image transfer via partner brands (categories) and/or
institutional associations that contribute in a positive/negative way to customer-derived
meaning for the brand (image) and value (equity)" (Uggla 2004, p108).

Therefore the ingredients of the model are leader brand (which contributes and connects to
the larger association base through identity transfer), partner brand (its associations are
secondary to the leader brand and is a brand with desirable reputation and high levels of
awareness) and institutional associations (e.g. Universities or church with embedded cultural
or social meanings which can be transferred to a brand as a source of added value). See
figure 10.

Institutional
associations
Image Identity
transfer transfer
Association base

Partner brand Leader brand

Partner category Leader category

Customer brand
image

Figure 10 Brand association base model

3
Henrik Uggla (1965) author and professor in strategic brand management, brand consultant in the industry.
Current lecturer at KTH Royal Institute of Technology, School of Engineering and Industrial Management.

27
3.2.4 Valuing and Measuring Brand Equity
To measure brand equity properly, is of critical importance if the marketing program is to be
effective and efficient under the overall strategy of the company. The ultimate or ideal
destination for measuring brand equity is to reach a "brand equity index" that would
summarize the health of the brand and captures the "totality" of brand equity just as a
thermometer measuring body temperature.

There are many methods suggested to measure brand equity but it is important to note that
brand equity, as shown already, is a multi-dimensional concept and to capture a
comprehensive picture of it requires different types of measures. Multiple measuring
increases the diagnostic power of marketing research and helps the managers find out what
and why is happening to their brands.

Keller (2003) classifies brand equity measurement methods into two categories of
comparative methods and holistic methods. The former focuses on better assessment of the
effects of consumer perceptions on consumer response to various aspects of marketing
program and the specific benefits of brand equity. The latter focuses on estimating the
overall or summary value of a brand.

I . Comparative Methods: involve experiments that analyze consumer attitudes and

behavior toward a brand to estimate the benefits of having a high level of awareness
and strong, favorable and unique brand associations and includes two types:

i . Brand-Based Comparative Approaches: hold the marketing element or activity

fixed and examine consumer response to changes in brand identification.
Therefore, one group of consumers respond to an element of marketing program
attributed to the target brand and the other group responds to the same elements
but attributed to a competitive or unnamed brand. "Blind test" is a classic
example.

i i . Marketing-Based Comparative Approaches: hold the brand fixed and examine

consumer response to changes in the element of the marketing program. One of
the most used applications is to test the consumer response and consumer's
switch rate to competitors when price is increased step by step.

I I . Holistic Methods: attempt to place an overall value on the brand in either abstract
utility terms or concrete financial terms and they fall into residual approaches or
valuation approaches.

i. Residual Approaches: The rationale behind residual approaches is the view that
brand equity is what remains of consumer preferences and choices after
subtracting physical product effects.

ii. Valuation Approaches: Aim to extract the value of a brand in financial or

accounting terms and try to put a price tag on a brand for the following reasons:

28
 Mergers and acquisitions
Brand licensing
Fund raising
Brand management decisions

Valuation approaches take three different forms: (I) the cost approach maintains that
brand equity is the amount of money that would be required to reproduce or replace
the brand (including all costs for R&D, marketing, advertising etc.). (II) The market
approach views brand equity as the present value of the future economic benefits to
be derived by the owner of the asset or simply put, the amount that an active market
will put on the asset in an exchange between the buyer and the seller. (III) The
income approach, argues that brand equity is the discounted future cash flow from
the future earnings stream from the brand

Aaker (1991) also suggests several methods to measure brand equity some of which
overlap with Keller's methods which follows here:

Price premium generated by the brand name: Brand equity will be reflected in
price premiums. Brand equity generated by the price premium can be measured by
simply to observe the price levels in the market and the differences between the
comparable products. Price premium can also be measured through market research
by asking the customers how much they are going to pay for the branded good
comparing to a no name product of the same features. An alternative method is to
obtain buyer-preference or purchase-likelihood measures for different price levels. A
high-equity brand will lose little share to a competitor's lower price and will gain share
when its own relative price is decreased (up to a certain point only).

Replacement cost: It is the cost of establishing a comparable name in the market.

For example, if it would cost 100 million USD to launch a new consumer product with
25% chance of success, the company would need to develop four products on
average to ensure the winner. Therefore the brand value of an already established
brand in the category would be 400 million USD.

Brand value based on stock price movements: This approach is suggested by

finance theory and is based on the arguments that the stock market will adjust the
price of a firm to reflect future prospects of its brand. The approach starts with the
market value of the firm as the product of the stock price and the number of shares.
The replacement costs of the tangible assets (e.g. plant, equipment, inventories and
cash) are then subtracted. The balance, intangible assets, is apportioned into three
components: brand equity, the value of non-brand factors (e.g. R&D and patents)
and the value of industry factors.

29
3.3 Brand Equity in B2B Markets
This section is derived mainly through a complete review of the precious book, B2B Brand
Management by Philip Kotler 4 (2006) particularly written to address branding issues in B2B
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markets.

3.3.1 Background of branding in B2B

When talking of brands, most people think of Coca Cola, Apple, H&M and Gucci and many
other strong brands which most often happen to fall into the category of business-to-
consumers (B2C) markets. In business-to-business (B2B), however, things seem to be
slightly different and branding may not be regarded as that relevant as it is in B2C.

Many managers are convinced that branding is confined only to consumer product markets.
Their rationale often relies on the following beliefs:

They are in a commodity or specialty market different from B2C.

Customers already hold a fair deal of information and knowledge about their products or
services as well as those of their competitors.
Brand loyalty is a non-rational behavior which applies to products such as jeans and soft
drinks- B2B is a more rational world.

In fact some of the strongest brands belong to B2B markets. Brands such as IBM, GE,
Siemens, Intel, Boeing and FedEx, are B2B examples even though some of them also
operate in B2C segment.

Some part of such misunderstanding is due to the wrong perception that "branding is about
stirring people into irrational buying decisions". But the truth is that without any great product
or service with a distinct value proposition, there can be no successful brand. Even the best
advertising cannot create something that is not there or as the old saying among marketers:
"Nothing kills a bad product faster than good advertising" 5.
P4F P

Brands serve exactly the same general purposes in B2B markets as they do in B2C. Some
important general purposes common in both B2B and B2C are:

Facilitate the identification of Product, services and businesses.

Differentiate products and services from competitors.
Communicate the benefits and value propositions.
Guarantee the quality, origin and performance.
Reduce risk and complexity of buying decision.

4
Philip Kotler (born 1931) the American academic focused on marketing. The author of Marketing
Management among dozens of other textbooks and books, he is the S.C. Johnson & Son
Distinguished Professor of International Marketing at the Kellogg School of Management at
Northwestern University.
5
Peter de Legge, The Brand Version 2.0: Business-to-Business Brands in the Internet Age,
Marketing Today, 2002.

30
Some aspects of branding, however, are more important in B2B. McKinsey&Company
proposes the most important brand functions based on the analysis it did in several German
markets:

Increase information efficiency

Risk reduction
Value/added Image benefit creation

3.3.2 B2B Markets

There are many differences in the nature of B2B and B2C markets. Before deciding whether
to establish a branding strategy for a product, service or business, a marketing manager
should be well aware of these differences relative to B2C markets.

According to Kotler (2006), the main differences of business markets compared to consumer
markets are:

I. The nature and complexity of industrial products or services

II. The nature and diversity of industrial demand
III. The significantly fewer number of customers
IV. Larger volumes per customer
V. Closer and longer-lasting supplier-customer relationship

I. The nature and complexity of industrial products or services

Ranging from simple office tools to turn key projects, the variety of industrial products or
services is such a huge and complex one. To reduce such complexity, researchers have
developed different typologies and therefore business markets are broken down into these
markets:

Materials and parts e.g. raw materials, manufactured materials and parts
Capital items e.g. buildings/equipments used in production
Supplies and services e.g. operating supplies, repair/maintenance items

This complexity of industrial products has two consequences:

i. Purchasing process often requires qualified experts on both sides.

ii. Industrial products tend to be individual solutions that require high levels of fine-
tuning.

II. Derived demand

The value chain of industrial businesses creates enormous complexity. Generally, B2B
demand is derived demand pulled through the chain as a result of the final end product
demand. Due to the nature of industrial markets in which most businesses produce a limited
number of goods or services only, any change at the end of the value chain can have
significant repercussions on all the supply chain already known as "bullwhip effect".

31
As a result of derived demand-nature of Industrial markets:

i. Industrial markets tend to be more volatile than consumer demand.

ii. Derived demand is far more inelastic than consumer demand (for a business it
makes little sense to buy more of a need resource just because the price is
temporarily low).

To illustrate the point, imagine the demand for Silicon dioxide which is used in
microprocessors. The demand for Silicon dioxide is there only because of the demand for
PCs at the end of the value chain. If it happened that a new technology requires no Silicon
dioxide in manufacturing process of microprocessors, it will have devastating effects on
Silicon dioxide business.

III. Fewer number of customers-and-

IV. Larger purchase volume

Most of the B2B companies have a small number of customers who contribute to the vast
majority of their turnover and sales volume. Customers of industrial goods are in general
classified into three groups:

Users: Make use of the purchased goods in their businesses (e.g. a manufacturer who buys
a machine to produce parts for his finished goods).

Original Equipment Manufacturers (OEMs): Incorporate the purchased goods into their final
products (e.g. car manufacturers who use outsourced parts).

Middlemen: Distributors or wholesalers who distribute industrial goods from manufacturers to

users, OEMs and other middlemen.

V. Closer and longer-lasting supplier-customer relationship

To understand the nature of such relationship, it is required to consider the buying process in
B2B and its elements in close.

Buying situation can be broken down into three different situations:

Straight re-buy: is the most common buying situation with the lowest risk. Ordinary,
low cost items such as office supply which are bought on a routine basis.
Modified re-buy: happens when an existing need is to be satisfied in a modified way
for example by reducing the cost or improving the performance.
New task: happens when a company tries to purchase an item for the first time.
Usually, lack of experience increases the level of risk and uncertainty.

The greater the cost and risk of a new task, the more people involved in buying decision and
the longer time it takes to make the final decision. The totality of people involved in a buying
decision making process is reflected in a concept called "buying center".

The buying center is not a physical center but the totality of the people involved in it which is
shown in figure 11. The names are quite reflective of the roles so there will be no need for
more explanation except for the Gate Keepers who are defined as "those who have the
power to control the information flow to the members of the buying center (purchasing
agents, receptionists and telephone operators etc.)" Kottler (2006).

32
 Decider
Gatekeeper Approver

Buying Center
Buyer User

Innitiator Influencer

Figure11 Potential Parties involved in a buying center

To simplify such complexity, it is necessary to break the industrial purchase into several
stages. Robinson et.al (1967), distinguish eight buying stages:

Stage1- Problem recognition: Starts with anticipation of a certain need which can range from
a trivial re-buy situation to the complex acquisition of a new plant.

Stage2- General needs description: is to outline the estimated quantity and timeframe for
procurement of the required product or service.

Stage3- Product specification: includes detailed specification of the final products or services
both technically and commercially e.g. terms of payment, maintenance, etc.

Stage4- Search for and evaluation of potential suppliers: involves searching for suppliers
(through media, consulting companies, data banks etc.) and then evaluate the alternatives.

Stage5- Proposal solicitation and analysis: Besides obtaining proposals from potential
suppliers, it involves defining important criteria for evaluation and selection.

Stage6- Supplier evaluation and selection: involves weighing the different criteria established
previously and final selection of the supplier(s).

Stage7- Order-routine specifications: it varies depending on how the production is organized.

Stage8- Performance review: the organization buying process is finished when the product or
service has been received and checked by the company.

33
Given the complexity of buying process in industrial markets, many other factors also affect
the decision making process. Environmental factors as well as interpersonal factors which
refer to the personality and value system of the buying professionals make the process even
more complicated. The effect of soft factors stemming from personality of people involved,
might even turn a "rational" decision making process to a perfectly human reaction. Kotler
(2006) summarizes the main forces involved in the buying process in the following diagram.
As the diagram shows, influential dimensions on the buying center are rather complex and
depending on the buying situation, they may vary greatly in importance and influence.

Buying Situation
Straight re-buy
Modified re-buy
New task

Hard facts Soft facts

Price Security/risk reduction
Features/functionality Buying Relationships
Quality Center Trust
Delivery Time pressure
Service Image benefits

Environmental Organizational Interpersonal Individual

Level of demand Objectives Interests Job position
Economic outlook Policies Authority Age
Interest rate Procedures Status Income
Political Organizational Empathy Personality
developments structures Persuasiveness Culture
Technological Systems Attitude towards
developments risk
Competition

Figure 12 Holistic view of forces influencing purchasing process through buying center

Given the above mentioned complexity of purchases, it should be clear now why the buyer-
supplier relationship is closer and long-lasting in B2B and why frequent switching to different
suppliers is not a common practice in B2B.

34
3.3.3 B2B Brand Relevance
The industrial marketing environment has become so turbulent and is changing so rapidly
that failing to adapt to these new circumstances will inevitably drop businesses out of the
race. In such a dynamic and competitive environment, it is not enough anymore to just offer
great products and services. Brands will help businesses to gain competitive advantage and
set themselves apart from the pack.

Those factors which have leveraged the importance of brands in B2C, are also the same
driving forces of brand importance in B2B the most important of which according to Kotler
(2006) are:

I. Proliferation of similar products and services: due to the technological advances,

any functional advantages and technical superiority are quickly imitated and short-
lived. Therefore, merely innovating products and services won't differentiate products
or sustain long-term competitive advantages. IBM is an example of best practice in
this case. IBM products don't provide a distinct functional advantage over the
competitors. Professional buyers select IBM over less-known competitors for it's a
"trust" brand. This is an additional value provided through the brand beside functional
performance.
II. Increasing complexity: today, there is a strong tendency towards complex solution-
based market offerings in B2B markets. Companies rarely sell single product or
services, they sell solutions. These solutions encompass a wide range of different
offerings which due to their complexity are not self-explanatory. This is where brands
are valuable tools to reduce complexity by simplifying the offering, communicate
information and help the business stand out in a crowed. SAP is the best example of
this role. With so much complexity in its products and services, the brand of SAP
helps the customer to simplify the decision and overcome the overload of information
that such companies provide in B2B markets.
III. Incredible price pressure: businesses can not realize higher prices for their
offerings by only offering special functional advantages. Some of these special
offerings are not even needed by the customers. Brands can offer added value since
they communicate both tangible and intangible factors. Mercedes Trucks are offered
with a price premium of 20% over Volvo trucks in the European market. Is there
really that difference in functionality of the two trucks?

Kotler (2006) also explains general market trends, changes and developments which have
generated these three factors: globalization and hyper competition.

Globalization:
Under the pressure by globalization, global transportation and logistics networks are
constantly improving. The so-called containerization cargo and inter-modal transportation
together with other innovations in logistics has enabled companies to reach foreign markets
efficiently, quickly and cheaply.

Another outcome of globalization is the worldwide assimilation of technical norms and

standards. Further reduction of barriers and liberalization of the markets and tariffs pushed
by WTO has decreased restraints of competition. This has opened the doors to small and
medium sized companies (SMEs) to sell their products worldwide thereby increasing
competition.

35
The above mentioned liberalization of trade is driving consolidation in many industries
thereby increasing the number of mergers and acquisitions (M&A) and strategic alliances.
Many of these mergers and acquisitions have involved brand-owing businesses and for
durability and earning power, brands have become highly desirable properties.

Hyper Competition:
The ongoing globalization, together with several important factors such as appealing
substitute products, more educated and fragmented customer tastes, deregulation and
invention of new business models are driving forces of hyper competition.

Hyper competition markets are characterized by intense and rapid competitive moves in
which competitors have to move very quickly and constantly try to erode competitive
advantages of rivals. As a result, the product life cycle (PLC) is very short (particularly in hi-
tech) and companies bear a lot of R&D costs because they have to amortize the costs over
a shorter period of time. This makes it more difficult to differentiate products or services
based only on functionality.

A bold example in hi-tech is Intel. Despite of the same functionality, better branding strategy
has placed Intel way ahead of AMD in microprocessors market.

Research done by McKinsey and MCM 6 based on empirical survey of 750 deciders in 18
P5F P

B2B German markets in 2002 reveals the most important functions of brands in B2B as
follows:

1) Increase Information Efficiency. Branded products make it easier for customers to

gather and process information by bundling information about manufacturer's origin,
quality etc. in a confusing environment. Moreover, branded products have recognition
value meaning that customers can repeatedly, quickly and easily find trusted brands.
2) Risk Reduction. Brands provide continuity in the predictability of the product
benefits. Brands can legitimate buying decisions in B2B where buyers are highly risk
adverse.
3) Value Added/ Image Benefit Creation. In B2B, the additional value provided by
brands is not in a purely self-expressive way as it is in B2C. Nonetheless, it is still
important to present your employees and the whole corporation through your brand.

6
Mirko Caspar, Achim Hecker, and Tatjana Sabel, Markenrelevanz in der Unternehmensfuehrung
Messung, Erklaerung und empirische Befunde fuer B2B-Maerkte, 2002, pp. 23-26. Through Kotler
(2006).

36
 Figure13 Importance of brand functions in B2C vs. B2B

The same survey also finds that risk reduction is by far the most important function of the
brands in B2B markets (45%), followed by information efficiency (41%) and value
added/image benefit creation (14%). The interesting finding is that these results are just
opposite of those of B2C (See figure 13). From this finding the following is concluded:

Risk Reduction in the buying process is very important when buying complex high-
profile products.
Information Efficiency is very important when buying complex and capital-intensive
products or services.
Value Added is of high importance for publicly visible products and services.

Putting together the three main factors that leveraged the importance of brands in B2B and
their causing trends, the brands functions and other factors in B2B environment, the
following diagram summarizes and illustrates brand relevance in B2B environment:

37
 Factors Boosting
Brand Relevance
Brand
Proliferation of Similar
Products Risk Reduction

Globalization Brands
differentiate, reduce risk
Increasing Complexity & complexity, Information Efficiency
compensate price
pressure and offer
Hyper Competition
additional values
Price Pressures Value added/Image
Benefit Creation

Figure14 Factors boosting brand relevance

Recalling the three buying situations and eight purchasing stages from the previous section,
the brand relevance is the highest for a new task and in relation to the stages of
organizational buying process, in the beginning stages the brand importance is very high
and it decreases from stage to stage. See figure 15.

Figure15 Brand relevance in different buying stages

Brand
Relevance

New Task Modified Re-buy Straight Re-buy

Stage1 Stage 8

38
Kotler (2006) mentions several other roles for brands in B2B, which are secondary to the
three most important roles already mentioned. These roles are as the followings:

Differentiate- Brands are effective means to "de-commoditize" product categories

that are difficult to differentiate. Examples are Intel and IBM.

Secure Future Business- Some segments and industries are turbulent and volatile.
Strong brands make it easier for companies to survive crisis. Caterpillar and Komatsu
are examples of brands which survived in an industry where a lot of companies
disappeared due to industry crisis. These two companies are almost the only main
players in the industry now.

Brand Loyalty- Creating Brands help companies in transitioning from transaction-

based selling model to one that is relationship-based. Thus, brand loyalty is realized
when brand delivers its promises. HSBC bank with significant increase in its brand
during the last years is an example of benefiting from brand loyalty.

Differentiate Marketing Efforts- Companies with strong brands will enjoy increased
communication effectiveness since their marketing efforts will be accepted easier
than those of unnamed products or services.

Create Preferences- Strong brands can act as a barrier to switch to other suppliers
and reduce the pressure of competitive brands. Shimano, the Japanese bike
component manufacturer has realized such brand preference for its hub gears.

Command Price Premium- A business with strong brand not only can command
premium prices on its offerings and reduce competitive forces, but will also be able to
reflect its brand premium in the acquisition price offered by another business.

Create Brand Image- Brand image will make the offerings of the business more
appealing to all stakeholders. It makes it even easier to recruit and retain talent.

Increase Sales- Companies with strong brands can enjoy both higher margins and
higher sales volume.

Not only do companies who do invest in brands enjoy from above benefits, there are
penalties for those who do not. The alternatives are price cutting, discounts and cost
reduction programmes.

See figure 16 for more illustration.

39
 Create Brand
Secure Future Loyalty Differentiate
Businesses Marketing

Brnad
Create
Differentiate Risk Reduction Preferences
Information Efficiency
Value Added

Create Brand
Increase Image
Sales Command
Price
Premium

Figure16 Brand roles for companies and customers

40
4. Empirical analysis

4.1 Introduction
In this chapter first a qualitative analysis will be conducted to evaluate strength of
U U

Caterpillar's brand and the role of the brand equity in Caterpillar's business. Strength of the
brand equity of the company, its elements and the role of the brand for both the company
and its customers will be evaluated from a "holistic" point of view.

Further in the chapter, secondary data will be used for a quantitative cross-industrial
U

comparative analysis to analyze the role of brand equity in performance of two competitors
U

in the same industry but with different brand values.

The research will continue with Caterpillar Inc and it will compare the performance of the
company with its nearest competitor, Komatsu Ltd, the Japan based manufacturer of
construction and mining equipment, utilities, forest and industrial machinery.

To provide a cross-industrial analysis the research will extend its investigation into the
second case in high-tech electronics industry which will compare Intel, the successful brand
in micro processors and electronics with AMD, its competitor with less valued brand.

But first let's take a look at the overall picture of brands and their values in different
industries ranked by interbrand as the main source of brand values in this paper.

4.1.1 Introduction to Interbrand

Interbrand is the most well-known branding consultant established in 1974 which offers
branding consultancy services to many companies and organizations including many
Fortune500s. The company also uses a complex method of quantitative and qualitative tools
to evaluate brand values and its annual ranking of "100 Best Global Brands" is the most
reliable and widely accepted reference for industries, investors and financial markets.

According to Interbrand Coca Cola is the most valuable brand in the world with 71.8 billion
USD worth (see Appendix I for a complete list of 100 best global brands in 2011). The
ranking is also done based on eighteen categorized industries from alcohol and beverage to
energy and transportation (see figure 17). In this ranking, Caterpillar is ranked at 64th P P

globally with 5.598 billion USD worth and falls in the category of "diversified" together with
GE, Siemens, John Deer and 3M (figure18).

41
Figure17 Industries and the number of brands evaluated in each industry (source: Interbrand)

Diversified
42.808 45.000
40.000
35.000
Total Brand Value (m$)

30.000
25.000
20.000
15.000
7.900 10.000
5.598
3.945 3.651
5.000
0.000
3M Caterpillar GE John Deer Siemens

Figure18 Diversified category considered for evaluation by Interbrand

42
4.2 Company Background

Caterpillar History
The origin of Caterpillar products goes back to early 1900s, when Benjamin Holt tried to
make the early steam tractors sank-proof against the rich soft earth of the San Joaquin
Valley surrounding California. In 1910, the Holt Caterpillar Company was formed in Illinois to
manufacture tractors. In the same year, C.L. Best Gas Tractor Company formed by Clarence
Leo Best as the main competitor.

In 1925, the financially stronger C.L. Best merged with the market leader Holt Caterpillar to
form the Caterpillar Tractor Co. After the WWII and during the post-war construction boom,
the company grew at a rapid pace and launched its first venture outside the US in 1950
which turned the company into a multinational. Ever since, the company has continued
growing significantly in a series of acquisitions (see appendix II).

In 1986, the company re-organized itself as a Delaware corporation under the name
Caterpillar Inc. The company is a top-ranked Fortune 500 and its stock is a component of
Dow Jones Industrial Average and S&P 500 and is traded at NYSE as: CAT.

Caterpillar today

Today, Caterpillar Inc. is the world's leading manufacturer of construction and mining
equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric
locomotives. The company is also a leading services provider through Caterpillar Financial
Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services and Progress
Rail services.

Caterpillar Inc. operates in the following three main businesses in 180 countries (see figure
19 for geographic spread):

Machinery
Engines
Financial Products

Caterpillar Inc. hosts more than 125.000 full-time employees in 2011 world-wide and
operates through 191dealers internationally. See figure 19 for trends in company's growth
over a five-year period.

43
Figure19 Caterpillar industries, geographical spread and key trends over five years

44
Caterpillar Strategy

Vision: "Our vision is a world in which all people's basic requirements- such as shelter, clean
U U

water, sanitation and reliable power are fulfilled in a way that sustains our environment".

Mission: "Our mission is to enable economic growth through infrastructure and energy
U U

development and to provide solutions that protect people and preserves the planet".

Values: Please see figure 20 for an explanation of core values.

U U

Strategy: "Our strategy is to provide work environments, products, services and solutions
U U

that make efficient use of the world's natural resources and reduce unnecessary impacts on
people, the environment and the economy" 7. P6F P

Figure 21 illustrates a holistic view of the company's strategy.

We are recognized as the leader everywhere we do business
Vision 2020
U
Our products, services and solutions help our customers succeed
Our work today help our customers create a more sustainable world
Our financial performance consistently rewards our stockholders
Our distribution system is a competitive advantage
Our people are talented and live our Values In Action
Our business model drives superior results
Our supply chain is world class

Our We win by delivering valued, quality products, services and solutions to our customers that provide the lowest total
Business owning and operating lifecycle costs. This value proposition, enabled by our unmatched customer support, creates the
Model largest global field population, highest customer loyalty and attractive profitability through the business cycle.

Values In Action
U

Integrity Excellence Team Work Commitment

We: We: We: We:

Deliver what we promise Take pride in what we make and
Are trustworthy do
Compete fairly Have an intense, acute focus on
our customers
Act with a sense of urgency
Achieve excellence through
Caterpillar production system and
6 Sigma
Utilize the unique talents of our
team
Strengthen our team and
improve results through inclusion
Collaborate with employees,
dealers, distributors and suppliers
We are committed to Caterpillar's
success
Protect the health and safety of
others and ourselves
Are personally accountable to meet
our goals
Create and capture value through
sustainable solutions

Figure20 Company's values in Action, business model and vision for 2020

7
http://www.caterpillar.com/sustainability/vision-mission-strategy.

45
Figure21 Overview of company's strategy and its elements

4.3 Caterpillar Inc. Brands

There used to be the time that Caterpillar and CAT brand were synonymous. In the early
days of Caterpillar's history, both Caterpillar and CAT described industrial leading machines
and the company that built them. When the product line of the company expanded in 1950s,
CAT emerged as a distinct brand and the logo of CAT became the main identifier of the
products and services thirty years later.

Today, the CAT brand is only one of the brands of Caterpillar Inc- though the primary public-
facing one representing the largest and most respected family of products and services in
earth-moving industries world-wide- and the company holds many other brands in its
complex product portfolio.

All of the Caterpillar Inc brands fall under umbrella of the parent company with its simple but
distinct trademark. Caterpillar Inc Brand portfolio includes:

46
Cat FG Wilson
Cat Financial MaK
Cat Logistics Perkins
Cat Reman Progress Rail Services
Cat Rental Store Solar Turbines

The following is the corporate parent brand as umbrella and illustration and description of
each brand.

Figure22 Caterpillar parent brand (corporate logo)

The Cat brand is Caterpillar's flagship products and services brand,

representing the company's industry-leading products and services,
and the world-wide dealer networks.

Cat Financials provides a wide range of financing alternatives for

Cat and related equipments to customers and Cat dealers. The
brand has 25 years of presence and holds subsidiaries world-wide.

The Cat Logistics brand provides integrated supply chain solutions

to Caterpillar and other corporations in market sectors including
automotive, technology, electronics and manufacturing logistics.

Cat Reman focuses on salvage capabilities that refurbish and store

used machinery and technologies to like-new condition and
specifications.

The Cat Rental Stores serves as a convenient source for Caterpillar

products. With 1,500 locations globally, the Cat Rental Stores offers
short and long-term rentals for the general construction industry.

Solar Turbines serves in design, manufacture and service of

industrial gas turbine engines for off-shore production and
transmission of oil and natural gas as well as generating electricity.

47
 Based in UK, the former supplier of Caterpillar is now owned by the
company and manufactures 400,000 engines a year to support
different specifications.

Founded in 1966, FG Wilson produces generator sets ranging from

small standby sets suitable for domestic use to large units capable
of feeding power back into the national grid.

With facilities in US, Canada and Mexico, Progress Rail Services is

one of the largest providers of outsourced maintenance and repair
services to railroad industry in North America.

MaK branded marine diesel engines are marketed and serviced

through Caterpillar Marine Power Systems, headquartered in
Germany.

Caterpillar Brands relationships

To analyze brand portfolio of Caterpillar is not the aim of this paper. However, getting to
know the brand relationships in the portfolio will help understand better the role of brand
equity for Caterpillar's business.

Caterpillar Inc is basically known to fall under the "branded house" category in the brand
relationship spectrum. However, the company deviates from this strategy for some acquired
brands. The CAT brand, as the most prominent brand, makes the most contribution to the
branded house strategy. The branded house strategy owes its essence to CAT (same
identity), CAT Financials, CAT Logistics, CAT Reman and CAT Rental Stores (different
identity). Then there are endorsed brands of Solar Turbines and Progress Rail Services
(Token endorsement) and finally MAK, Perkins and FG Wilson (shadow endorser). For a
comprehensive illustration please see figure 23 8. P7F P

The idea of not exposing the last three brands strongly to Caterpillar's name seems rational
since these brands have already had a strong associations and customer base back in UK
(Perkins) and Germany (MaK). So Caterpillar probably has decided not to represent an
image of an aggressive take over which could have damaged customer loyalty of these
brands.

8
- The information refers to the annual report of Caterpillar 2011. Since its publish, there have been
two new acquired brands according to the company website including SEM and MWM Holding
GmbH.

48
 Known

Branded House

Sub Brand

Source
Endorsed Brands

House of Brands
Unknown

Low Differentiation High

Figure23 Caterpillar brand portfolio based on brand relationships spectrum

4.4 Elements of Caterpillar Brand Equity

4.4.1 Brand awareness

The brand awareness including brand recognition and brand recall is certainly significantly
high for Caterpillar in B2B industries the company operates both in private and governmental
sectors. In the lack of publicly available empirical data on the rate of company's brand
awareness we can refer to the brand presence in independent rankings. Caterpillar is ranked
as 58th in the Fortune 500 list of 2011. The company is also ranked as 64th in the Business
P P P P

week-Interbrand list of "top 100 global brands" 9 with a brand value of 5,598 Billion USD, a
P8F P

19% increase from its previous rank. The following is Interbrand's comments on Caterpillar
ranking:

"Caterpillars increase in value this year can be linked to multiple factors such as its
impressive global expansion, its unwavering commitment to its employees, and its reliance
on the strength of its brand As fervent believers in employee investment, Caterpillar
conducts multiple programs to motivate, support, and guide its global workforce, striving to
make its people proud to be part of the company Consumers see the brand as striving to
meet its demands readily and successfully through a commitment to service" 10. P9F P

9
- Established in 1974, Interbrand is the most globally recognized brand consulting company which
evaluates the brand values and many other characteristics of brands through quantitative and
qualitative brand valuing methods.
10
- http://www.interbrand.com/en/best-global-brands/best-global-brands-2008/best-global-brands-
2011.aspx

49
To qualify for inclusion in the business week/Interbrand Global Brands list, each brand must
drive at least a third of its revenue outside its home country, be recognized outside of its
base of customers and have publicly available market data.

Such public presence brings strong brand awareness throughout its customers across
industries which can be considered as the first essential for building a strong brand.

4.4.2 Brand Associations

There could be many associations attached to each brand in any company. However, for
any brand there are only few associations (in most cases only one or a couple) that are
relevant to the brand as core associations which give competitive advantage over
competitors.

Caterpillar brand is associated mostly with efficient performance, durability and

reliability. Although many companies make the same statements about their products, few
do really possess such brand associations and Caterpillar is one of them. Therefore it is
important to note that these associations are perceptions of customers in reality and not just
buzz words created by the company itself.

Efficient performance: Caterpillar claims that its products are far more fuel efficient and
highly productive in the field comparing to its competitors and backs its claim with
quantitative credible numbers. In its 2010 annual review, Caterpillar states that its Cat Tier4
machines (manufactured under Tier4 US regulations and standards) are 5% more fuel
efficient with near zero Nitrogen Dioxide emission.

Durability: Caterpillar products are well known for their durability and the company itself
emphasizes on reinforcement of this association and adds successful stories to the records
of efficient performance. For example, in the same annual report the company cites the case
of three gas generators which were first installed in 1986 for Snowbird and they passed
200.000 hours of service, far exceeding their expected operating life.

Reliability: Apart from quality in design and manufacturing, much of the reputation of
Caterpillar's products in durability owes to its unmatched and extensive network of dealers
that provide not only the sales points but also guarantee high quality maintenance support
and after sales service in and out of operations fields. Caterpillar's global network of dealers
ensures that customers get what they need, when they need it and where they need it.

Customer and Dealer support (C&DS) is led directly by Group President Stu Levenick. Cat
dealer employees reached 141.000 in 2011 in 191 locations.

Sources of Brand Associations

Brand associations are perceptions of customers that exist in the very real world of markets.
Associations are results of strong brand management and organizational strategy and skills.
The following is a list of main contributors to the role of Caterpillar brand associations.

50
 1. History and Heritage: Caterpillar has a long history which goes back to late 19th P P

century. The company has not lost focus on its core business for a long time which
has provided accumulated reputation and a rich heritage.
U U

2. Innovation: Caterpillar is an innovative company with huge investments in R&D. In

2011 R&D investment was 3.8% of the total revenue. R&D numbers are just growing
over the last decade with an exception for 2009 (due to the financial crisis). The
result is a successful combination of iron and electronics.

3. Dealer network: The Company has a strategic look at dealers as a critical source of
competitive advantage. There are 141.000 dealers employees in 191 locations as of
2011. Dealers are not parts providers only but they are solution providers for
customers. Dealers as touch points, points of interaction or points of brand contacts
U

act as information bearing experience a customer has with Caterpillar brand. U

The "Partners in Quality" program links personnel responsible for building a

particular machine with selected dealers. There are regular meetings between the
two as one team (every three months) to discuss quality issues.

4. Customer Focus: Caterpillar extends its relationships with customers to provide

maximum benefits for both parties. Operating in B2B gives the company
opportunities to work closer with key customers. For example, the CatCT660 truck
was developed and designed with feedback from customers. "this may be
Caterpillar's most intensely researched product everwe spent many hours
speaking with Cat Yellow Iron customers" 11 says George Taylor, director of truck
P10F P

group.

5. Branding Strategy (One Voice): Caterpillar has particular strategy for branding.
The company launched "One Voice" as a revising strategy program for its brand in
1994 which has been an example for all B2B industrial companies as well as
academics. One Voice program will be discussed further at the end of this section.

What are the implications of brand associations for Caterpillar's business?

U U

Price premium: Combination of efficiency and durability enables the company to

charge a premium price over competitors which is well justified by fuel efficiency and
higher productivity. The reasoning is that although the Caterpillar products are more
expensive, in the long run they are a better investment and value for money for they
work longer and better bringing more profit to the customers.

Customer Loyalty: Durability means that the customer is engaged with the company
over a longer period of time. The longer this contact, the more attached the customer
to the company. As a result, the customer is more likely to purchase spare parts or
switch to a new product of the company due to more contact with sales forces.

11
- Caterpillar Inc annual report 2011.

51
 Product line and brand extensions: When a brand has strong associations, it is much
easier to exploit associations and transfer them to new products or extend the brand
beyond the current customer base. The very example of such implication for
Caterpillar is its brand extension from B2B to B2C in CAT footwear. Caterpillar
durability and quality associations have been so strong that B2C customers quickly
accepted the same associations in footwear market and used CAT boots for heavy
duty purposes 12.
P1F P

Figure24 Caterpillar brand extension into B2C

What are the implications of brand associations for the Customers?

U U

We may recall that the brand equity is meaningful only if it offers added value for the
customers and that brand associations are nothing but perceptions of the customers towards
the totality of the brand and not what the company tries to impose. Caterpillar customers are
very different in size and needs. In other words, they are complex. This has important
implications in the role of Caterpillar's brand equity in its markets. Let's size up Caterpillar's
customers from the words of the CEO:

"Our customers are anything but simple. They are literally powering and building the
world. Our customers operate in every corner of the globe. They range in size from a small
residential contractor with one Caterpillar machine to large multinational global mining
customers with hundreds of machines working 24 hours a day seven days a week" 13. P12F P

Brand associations of Caterpillar- efficient performance, durability and reliability- have the
following implications for the customers:

Risk reduction: Caterpillar products are usually used in complex and big projects.
Such projects can't afford failure in quality or deadline or they will pay a high price for
that. Reliability means that the products of Caterpillar have the least probability of
crashing down during the operations or service and when it happens eventually, the
strong network of dealers are going to fix it as soon as possible. Therefore the risk of
not accomplishing the project milestones or deadlines in which Caterpillar products

12
- Wolverine World Wide is a licensee since 1994 and currently the sole manufacturer, worldwide
licensed to produce Cat branded footwear. wikipedia.org/wiki/Caterpillar_Inc.
13
- Doug Oberhelma, chairman and CEO, 2011 annual report, message from chairman.

52
 are in use is reduced significantly. Durability also means that the products are going
to last to or exceed the expected life cycle and therefore N.P.V calculations done by
customers are more realistic with lower risk for the projects.
Apart from such organizational risk reduction, Caterpillar brand equity may also help
in personal/departmental risk reduction. When a buyer chooses a well known brand
such as Caterpillar, he thinks he is on the safe side. There is a famous coat among
purchasers that says: "Nobody ever got fired for buying an IBM".

Information efficiency: Reliability, Performance and durability will all contribute to

ease of calculations and analysis for the customers throughout the purchasing
process. Recall from the previous chapter that the more complex the buying center
the more critical the role of brand equity. Since many of Caterpillar customers are
U

complex organizations such as mining or energy companies with high investments

with big, complex buying centers, the reputation of the company and brand
associations help information flow easier and more efficient within the network of
buying center. This is because the information is regarded as reliable and credible
U

since it comes from Caterpillar in contrast to less known companies who may try to
manipulate product features and information simply to win a project or tender. Also a
purchasing agent or purchasing center overwhelmed with information from different
suppliers may decide to choose Caterpillar in order to overcome extra analysis and
walk in a safe side of a well known brand.

4.4.3 Brand Affiliations

Knowing well its competitive advantage and brand associations, Caterpillar tries to affiliate
its brand with organizations which reinforce brand associations. Caterpillar has a
sponsorship program through which supports NASCAR and Leicester Tigers Rugby team.
Both sports are known as tough jobs demanding power, quality, heavy duty performance
and reliability which match perfectly with its brand associations and the business it operates
in.

The company also focuses a lot on sustainability both in its vision/mission and in practice.
Caterpillar Foundation was established in 1952 as the philanthropic arm of caterpillar Inc,
when such acts were just fancy words for some other companies. Ever since, the foundation
has contributed more than $500m to help make sustainable development possible around
the world by providing program support in the areas of environmental sustainability, access
to education and basic human needs.

Caterpillar also supports US annual disaster giving program through US Red Cross.

Figure 25 Company sponsorships

53
 One voice Program review

Caterpillar is the bench mark for success for many B2B companies today. But in early 1990s
it was a different situation. The company was headed towards a potential customer
confusion and brand erosion. Caterpillar had started operations under decentralized
divisions and these divisions would come with hundreds of products and added items to
corporate logo. Caterpillar soon realized that not only do customers have trouble
remembering new names, but they dont know what those names stand for.

To enable employees follow company's objectives without undermining corporate image and
identity of its brand, Caterpillar turned to Siegel & Gale, the New York based brand
consulting firm. Siegel& Gale experts worked closely with Caterpillars brand identity,
communications and public affairs managers to create a program that ultimately became
known as "One Voice". Initial efforts went into identifying key words of Caterpillar
characteristics such as Serious, strong, reliable and genuine. Then a three-tier system of
guidelines was produced.

The first level was called "Uniform" standards which had to do with corporate identity: logo
usage, corporate colors, typefaces, package design and so on.

The second level was called "shared" standards dealing with shared or related graphic
formats such as web pages, technical manuals, newsletters and product related materials
with family look.

The third level known as "Singular" standards made sure the communication efforts fit the
Caterpillar voice. This covered ads, brochures, direct mail, trade show graphics and other
one- of- a- kind programs.

To facilitate internalizing the new program, Caterpillar started training seminars for tens of
thousands of the employees in 1994. As a result of the One Voice program Business Week
ranked the Caterpillar brand 79th in its 2002 Top 100 Global Brand Scorecard, ahead of
such consumer brand powerhouses as Burger King, FedEx and Polo Ralph Lauren. In
conjunction with Interbrand and J.P. Morgan Chase & Co., Business Week placed an asset
value of $3.2 billion on the Caterpillar brand.

The most important goal of the "One Voice" was to reduce complexity with the philosophy
that "less is more" which is a key success factor in B2B.

One important take away from One Voice experience for managers is that it took nearly one
decade for the program to pay off. In other words, branding is a long-term investment. Don't
expect early results from investments in branding.

54
 Customer
R&D Dealers
Focus

History & One Voice

Heritage Program

Customers
Implications for Caterpillar Implications for Customers
Price Premium Brand
Risk Reduction Profit
Associations
Customer Loyalty
Performance Durability Reliability Information Efficiency
Brand & Product Line
Extension (B2B to B2C)
Efficient buying process

Figure 26 A holistic model for functions of Caterpillar's brand associations

4.5 The role of Brand Equity in B2B: A Comparative Quantitative analysis

In chapter 3, several important implications of brand equity for both companies and
customers was introduced based on the existing literature. In this section two of the more
important roles that brands are supposed to perform for companies in B2B markets are
U U

selected for further analysis. The roles are as follows:

I. Brand equity helps the companies recover faster from financial or market difficulties.
II. Brand equity makes the marketing communications more effective.

Given the other factors are remained constant, the above mentioned assumptions have the
following implications:

i. Companies with higher brand equity are supposed to recover faster form financial or
market difficulties comparing to those with lower brand equity.
ii. Market responses to marketing investments and expenditures of companies with
higher brand equities are supposed to be higher comparing to those of companies
with lower brand equities. In other words, the rate of market response (here revenue)
to each dollar spent in marketing by the former is supposed to be higher than the
increase in revenue of the latter for each dollar spent.

55
These two roles of brand equity are chosen to analyze mainly because they are testable with
quantitative analysis and also the data required for their analysis is publicly available through
companies' financial statements. The first one was particularly attracting and valid since we
have recently experienced the financial crisis in 2008 and therefore it is now the best time to
test the theories by comparing the performance of companies of different brand value before
and after the financial crisis.

4.5.1 Caterpillar vs. Komatsu

I.Hypothesis testing 1: Recovery from financial and market difficulties

Hypothesis (H 1 ): Caterpillar must have recovered faster than Komatsu from financial crisis
R R

for its higher brand value.

Caterpillar entered in the "100 Best Global Brands" ranking of Interbrand in 2002 for the first
time. Ever since the company has been improving its brand value (see figure 27).

Figure 27 Overview of Caterpillar brand value over 10 years- Source: Interbrand

Komatsu has also a valuable brand but not as high as its bigger competitor. Komatsu has
never been into the top 100 global ranking however, Interbrand has evaluated its brand
value for the last three years. Figure 28 compares the value of the two rivals over three
years.

56
 Brand Values over three years
6

Brand Value (1000m$)

5
4
Caterillar 3
Komatsu 2
1
0
2009 2010 2011

Figure 28 Comparison of brand values

Now that it's obvious that Caterpillar has higher brand equity over its competitor, Komatsu,
we can analyze their pre-post financial crisis performance. The following table illustrates the
revenue of both companies as well as the changes in revenue comparing to previous year
over a three-year period before and after financial crisis.

Year 2005 2006 2007 2008 2009 2010 2011

Caterpillar
Revenue (1000m$) 36.339 41.517 44.958 51.324 32.396 42.588 60.138
% Change to previous year 0.142492 0.082882 0.141599 -0.36879 0.314607 0.412088
Aver of 3-year % change 2006-2008: 12.23% 2009-2011: 11.93%

Komatsu
Revenue (1000m$) 11.49 13.66 16.05 22.43 20.42 15.39 22.2
% Change to previous year 0.18886 0.174963 0.397508 -0.08961 -0.24633 0.442495
Aver of 3-year % change 2006-2008: 25.37% 2009-2011: 3.55%

Figure 29 Data on Caterpillar& Komatsu

Figures 30 and 31 are graphical translations of the above data into diagrams for better
understanding and comparison. The data clearly shows better performance of Caterpillar
over Komatsu in revenue growth before and after financial crisis and also the pace of
recovery after the financial crisis. In 2010, Caterpillar has already pulled up above the
negative growth line with 31% of growth in revenue while Komatsu is still struggling down the
alarming zone of negative growth to recover. The sharper decline in 2009, the very first post-
crisis year, in Caterpillar's revenue comparing to that of Komatsu may be explained by more
dependence of Caterpillar to US and EU markets comparing to more domestic base revenue
of Komatsu. Therefore since US construction industry was damaged more than that of Japan
it affected greatly the revenue of Caterpillar.

57
 Revenue recovery of Financial crisis

Revenue (billion $)
Figure30 Revenue based recovery from the financial crisis

% change in revenue from the previous year

44 50
39.7 41
40
31.46
30
18.8 17.5
14.25 14.2 20
8.3
Percent %

Caterpillar 10
Komatsu 0
-10
-9
-20
-24.63 -30

-36 -40

Figure 31 Percent of change in revenue before and after 2008

To recall the numbers of average percents of growth before and after financial crisis over a
three-year period from the figure 29 makes the comparison more meaningful and completes
the overall picture of performances of the two companies.

58
Caterpillar and Komatsu have had the average growth rate in revenue of 12.23% and
25.37% before the financial crisis respectively. After the financial crisis, the number for
Caterpillar is lowered only slightly to 11.93% which means an almost balanced performance
pre and post financial crisis. Komatsu on the other side has experienced a significant drop
off in its number from 25.37% to 3.55% which is a sharp incline (figure 32).

Therefore quick recovery of Caterpillar has contributed to the average of its revenue
growth over three years while struggling two years to pull the revenue up from the
initial decline has made the Komatsu's post-crisis average revenue significantly low.

The results of the analysis confirms that Caterpillar has recovered from the financial crisis
much faster than Komatsu thus H 1 is approved. However, one should be cautious to draw
R R

conclusions for any other two companies.

Financial crisis effect on average of % change in

revenues

30
Caterpillar
20
Komatsu
Komatsu
10
Caterpillar
0
2006-2008 2009-2011

Figure 32 Average of change in revenue before and after financial crisis

II. Hypothesis testing 2: Efficiency of market communications and marketing investments

Hypothesis2 (H 2 ): Market response to Caterpillar's marketing investments is more efficient

R R

comparing to that of Komatsu. Thus, there should be a stronger correlation between

Caterpillar's marketing investments and higher revenues comparing to Komatsu.

The hypothesis is a twofold meaning that firstly there should be higher revenues for
Caterpillar for each dollar spent in marketing than the revenue Komatsu earns for each dollar
of marketing investments. Secondly, there should be a stronger positive correlation between
Caterpillar's revenue and marketing expenditure comparing with that of Komatsu which
means the marketing activities of Caterpillar is supposed to be more efficient and produce
more predictable results.

59
To test the H 2 , the data on marketing expenditures and revenues of both companies was
R R

collected from their public available financial statements and annual reports presented in
figure 33. Data was analyzed by SPSS 16.0 through simple linear regression analysis in
order to find possible correlations between variables (market investments as independent
variable and revenue as the dependent variable) and also compare the strength of
correlations for two companies with different brand values.

Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Caterpillar
Revenue (1000m$) 20.15 22.8 30.31 36.34 41.52 44.96 51.32 32.4 42.59 60.14
Marketing investments (1000m$) 2.094 2.32 2.93 3.19 3.706 3.821 4.399 3.645 4.248 5.203

Komatsu
Revenue (1000m$) 11.49 13.66 16.05 22.43 20.42 15.39 22.2
Marketing investments (1000m$) 2.14 2.22 2.43 3.17 3.26 2.68 3.19

Figure 33 Data on revenues and marketing investments

But before presenting the results, there are important notes to be taken into consideration:

The financial data on Caterpillar was collected over ten years and for Komatsu over
seven years. This was due to lack of available public data on Komatsu performance
prior to 2005 on the company's website and other publicly available source as to the
best knowledge of the writer.
The sample size for regression analysis is usually supposed to be bigger to produce
more predictable results. For the same reason as above, a bigger sample size was
not available.
The marketing investments presented here are collected from the data on annual
financial reports under the heading Marketing and general administrative
expenditures. It could be more specific if a break down of marketing expenditure data
could be analyzed specifically. Unfortunately such data was not publicly available.

Analysis and the results

The table of data on marketing expenditures and revenues reveals that Caterpillar is earning
significantly higher revenues for each dollar of expenditure on marketing. For example in the
year 2009, the year after the financial crisis, Caterpillar and Komatsu spent 3.65b$ and 3.26
b$ on marketing respectively. The revenues of the same year are 32.4b$ and 20.4 b$ for
Caterpillar and Komatsu respectively. In other words, Caterpillar spent only 12% more on
marketing while the market response to its investment was more than 58% higher to that of
Komatsu. Figure 34 is a graphic depiction of data on marketing investments and revenues
over a seven-year period ending in 2011.

However, it should be noted that for each year the revenue may be affected by many other
factors rather than marketing investments only. The trend but seems to be meaningful over
the presented period of 2005-2011 and the revenue of Caterpillar is significantly higher than
that of Komatsu in proportion to their marketing expenditures.

60
The more precise correlation between the two variables is determined by regression
analysis. It should be noted that the aim of statistical analysis is not to find if there is any
correlation between marketing expenditure and revenue only (though it will be helpful to do
so). Such relation may be predictable already because there is usually such relationship if
the company is operating healthy. The aim of the analysis is to find the difference between
correlations and to see if Caterpillar has stronger and more predictable correlation between
its marketing investments and revenues because of its more valuable brand equity.

70
Marketing investments v.s Revenues produced
60

50

Caterpillar Revenue 40

Billion $
Caterpillar Marketing inv
Komatsu Revenue 30
Komatsu Marketing inv
20

10

0
2005 2006 2007 2008 2009 2010 2011

Figure 34 Graphic depiction of data in figure 32

To determine the strength of correlation between revenues and marketing expenditures (if
any) the data was analyzed by SPSS over ten years for Caterpillar and seven years for
Komatsu. Given the marketing investments as independent and revenues as dependent
variables, the results were statistically significant showing a strong correlation between the
two variables for both companies (see appendix III). Being in line with H 2 , Caterpillar showed
R R

a stronger correlation between the two variables (adjusted R2= 0.922) comparing to Komatsu
P P

(adjusted R2=0.896) which makes the H 2 valid.

P P R R

The interpretation and generalization of the results however, should be done carefully and
with prudence:

1) The results justify the theme of the thesis and well approve the hypotheses which
were formed during the research for the case study (Caterpillar). However, the paper
may not claim that the model presented is comprehensive to a great degree. There
may be other factors affecting the correlation between variables other than the brand
equity. Simple linear relation between variables is not capable of explaining such
complex relationships and there will be need for a more complex model with several

61
 variables. Current results just prove that there is a correlation between brand equity
and efficiency of marketing activities and not the precise degree of such relationship
nor the interaction between brand equity and other variables.

2) Due to limitations that encompass this research such as sample size, lack of specific
data and other limitations in resources as well as intrinsic limitations such as time
and scope, generalizability of the results may be valid only upon further research.

4.5.2 Intel vs. AMD

The research has so far met its initial goals and objectives to in-depth analyze the role of
brand equity in B2B markets in general and in Caterpillar's business in particular. To further
validate the results and also to make the research a cross-industrial one, a second case
study has been selected in the different industry of electronics.

Background

Intel and AMD both operate in electronics industry with focus on microprocessors. Both
companies are strong and are considered as competitors in the industry. Intel, however, has
a much stronger and more valuable brand equity and is ranked as 7th in the top100 global
P P

ranking of Interbrand with brand value of 35.2 billion$. AMD unfortunately is not considered
for brand valuation by Inerbrand or other major brand valuation consultancy. The fact itself
implies that the difference in brand values of Intel and AMD must have been significant.

Intel has focused on branding in a particular category known as "ingredient branding".

Although its products may not have significant superior performance over AMD, Successful
brand strategy has enabled Intel to create a pull demand for its brand by main suppliers of
computers and electronics markets and charge a price premium over its competitor, AMD.
We may not even recognize the technical difference between Intel and AMD since
microprocessors are installed inside the computers out of a normal user point of direct visual
or physical interaction. Yet the brand is so strong that almost all of us are satisfied when we
observe the label "Intel inside" on our purchase.

Analysis

Analysis of the two brands was done based on the assumptions and hypotheses presented
in the previous section. Therefore we expect (with more confidence resulting from our
previous analysis) that the brand with greater equity (Intel) must have recovered faster from
financial crisis and also enjoys from more efficient marketing activities. Hypotheses are
therefore as follows:

H 1 : Intel must have recovered faster than AMD from the financial crisis.
R R

H 2 : Market response to Intel's marketing investments and marketing communications is

R R

stronger than that of AMD.

62
 Data on Intel and AMD performance regarding the revenues and growth in revenues are
presented in the following table.

Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Intel
Revenue (1000m$) 26.76 30.14 34.21 38.80 35.40 38.33 37.60 35.10 43.60 54.00
% change to previous year 0.13 0.13 0.13 -0.09 0.08 -0.02 -0.07 0.24 0.24
Average % change over n-year period 2002-2008: 6% 2008-2011:14%

AMD
Revenue (1000m$) 2.70 3.52 5.00 5.85 5.65 6.00 5.80 5.40 6.49 6.57
% change to previous year 0.30 0.42 0.17 -0.03 0.06 -0.03 -0.07 0.20 0.01
Average % change over n-year period 2002-2008: 15% 2008-2011: 5%

Figure 35 Data on Intel and AMD

An overview of revenue growth over the years for both companies is also presented in figure
36.

60.00

50.00

revenue (billion$)
40.00

Intel
30.00
AMD
20.00

10.00

0.00
2005 2006 2007 2008 2009 2010 2011

Figure 36 Trend on revenues of Intel and AMD

Looking at the trend in revenue growth shows that both companies were affected during the
financial crisis but not as seriously as Caterpillar and Komatsu did. This could be explained
probably due to the nature of the industries where real estate and constructions suffered the
most from the crisis but electronics and computers markets experienced less of the difficulty.
The next comparative graph which shows the percentage of average growth before and after
the financial crisis shows the same pattern as Caterpillar and Komatsu did. The average of
growth for Intel after the crisis is even better than pre-crisis period while AMD's average
growth declines significantly after the crisis (figure 37).

63
Here for this analysis a longer pre-crisis period is selected for taking the average (2002-
2008) mainly because the nature of the industry is more volatile comparing to mining and
construction industry which was analyzed already and therefore a longer period may result in
a more reliable number as the average of the growth rate.

Financial crisis effect on average of % change in

revenues

% change on average over specified

15.00
Intel

periods
10.00
AMD
AMD
5.00
Intel
0.00
2002-2008 2008-2011

Figure 37 Average of percentage of change in revenues over two periods.

The results of data analysis with SPSS are statistically significant and reveal a strong
correlation between marketing investments as independent variable and revenue as
dependent variable for Intel (R=0.941, R2=0.885) and a rather strong correlation (R=0.717,
P P

R2=0.514) for that of AMD (see appendix IV). A weaker correlation of variables for AMD to
Intel comparing to that of Komatsu to Caterpillar may be explained by much weaker brand
value of AMD against Intel in comparison with that of Komatsu against Caterpillar. This
finding, if repeated in further research on other two pairs of competitors, may contribute
significantly to elaboration of a reliable model to relate brand equity to company
performance.

The results are in line with the finding of the research that the company with higher brand
equity (here Intel), enjoys more efficient marketing activities with more predictable results.
Such a result in electronics industry contributes to validity of the findings in previous section.
Yet it must be emphasized again that to generalize the findings to other industries or even
other companies of the same industry requires scientific cautious and further research.

64
 5. Conclusions and Managerial implications

The literature review suggests that brand has a key role in prosperity of businesses in B2B
as well as in B2C. It will be a critical mistake to reduce the brand management simply to logo
design, tag line, packaging and advertisement. Despite of such an important role, brand
equity in B2B has been overlooked to some extent and many managers still believe that
brands are more relevant in consumer markets rather than industrial and complicated
markets of business-to-business. One explanation might be that many managers in industrial
markets- particularly in more mature and labor intensive industries such as cement or still-
have a technical background with less knowledge of marketing and branding academic wise.

Successful examples of brands in B2B have demonstrated that there is a huge potential in
brand equity for businesses to exploit in B2B. Successful stories of brands such as Intel and
Caterpillar has created a trend in recent years to invest more in brand management as a key
source of competitive advantage.

Brand equity has two key roles for customers in business to business markets. First, reduces
risk and the second, facilitates purchasing processes by creating information efficiency.
Implications of brand equity for companies are many, from price premium to differentiation
and increase in market share.

In this dissertation the role of brand equity for businesses was empirically studied through
two case studies both qualitatively and quantitatively.

Qualitative research in chapter 4 demonstrated the role of brand associations and customer
perceptions on brand and product line extensions. Caterpillar extended its brand from B2B to
B2C thanks to strong brand associations. Therefore associations are not intangible
subjective concepts only, but they have real implications such as line extensions, increase
on sales and revenues.

Quantitative research in chapter 4 demonstrated the two important roles of brand equity in
B2B in recovery from market and financial crisis and in increasing efficiency of marketing
communications and investments. Based on the results of statistical testing, those
companies with higher ranked brand equity recovered faster than their lower ranked
competitors and also received higher returns from their marketing communications than their
competitors with less brand equity on a dollar-to-dollar basis.

Although the results were repeated in different industries with the same patterns, the
researcher cautions scholars and managers before making generalization on the results.
What the research could demonstrate is the correlation between brand equity and
company's performance in certain aspects for the studied companies (Caterpillar, Komatsu,
Intel and AMD).

Managerial implications of the research are worth emphasizing. Managers could think of the
brand equity as an asset in their balance sheets and see branding as an investment and not
expenditure anymore. A holistic view on branding implies that managers should fit branding
policy in the overall strategy of the company and not only try to leverage their brand equity to
recover from difficult market times but also make it a source of competitive advantage. The
very pitfall for managers is to think of branding as a short term investment and expect early

65
returns. Branding is a long term investment and not like the marketing advertisement to be
spent over the first quarter of the financial year and to be planted at the end of the year
revenue. If Caterpillar and Intel enjoy efficient marketing communications, they have
invested in their brands for a long time with a winning policy which fits their long term
strategy.

6. Limitations and Suggestions for Further Research

This dissertation analyzed the role of brand equity in B2B markets empirically in two different
industries. For undertaking the research, all the possible and available tools and information
was implemented to make sure of valid and credible results deprived of any bias. However,
there were limitations to this research, both intrinsic and extrinsic, such as available time,
scope and data resources which are naturally accepted as characteristics of such a research
for a dissertation at a master of sciences degree level.

The sample size and number of variables involved in the analysis may be considered as the
main constraints on generalizability of the empirical findings. To provide more sample size, a
wider time window would have been required. To include more variables into the analysis,
would have required a change in scope of the research from an individual dissertation to a
team project with access to more resources including specific and detailed financial data on
the companies and industries under research.

Given the above limitations which could be addressed in future researches and regarding
the promising results of the paper that seem to have practical managerial applications, this
paper has opened up suggestions for further research both in depth and breadth.

There is considerable room to extend the research in breadth. Current study hesitates to
claim generalizability of its findings beyond the companies under study. Extending the
research in breadth will determine the degree of generalizability of the current results. Main
suggestions for further increase in breadth of the research could be to cover more industries
and more companies in each industry for the same singular variable analysis to confirm
generalizability of the results. The Ideal number could be the same 18 industries which cover
100 companies whose brand values is already evaluated and ranked by Interbrand. Such
analysis even in a simple bi-variable form (market expenditure as independent and revenue
as dependent variable) could confirm generalizability of the correlation between the brand
value and efficiency of market communications. Such research could benchmark the leader
company (with higher brand equity) in comparison with the follower (with lower brand equity)
in their market communications efficiency.

In case the majority followed the pattern as was shown in this paper, the outlaws (those who
do not follow the pattern) could be subject to further in-depth analysis to find out what factors
could have been responsible for disturbing the dominance of brand equity as the main factor.
This will be related more to further increase in depth of the research as follows.

There is also enough room to further increase the depth of the research based on the
results. Current research has used a simple regression analysis to find the degree of
correlation between two variables (revenue and market expenditure). The results have been

66
compared between pair of companies with different brand equities. Doing so, the research
has proved the correlation between the value of brand equity and performance of company
in certain areas but not the degree to which brand equity has been responsible for the
performance.

More investigations in determining what other factors are responsible for efficiency of
marketing communications (market response to investments) and boosting company
performance after a market crisis could result in better explanation of the role of brand equity
in performance of companies. This is because the current analysis is done with one single
variable and adding more variables will create a better picture of the extent to which brand
equity has been responsible for the superior performance of companies such as Caterpillar
or Intel.

One suggestion to determine the degree to which the brand equity is responsible for
marketing communications efficiency without adding more variables is to compare the
performance of pair of companies with significant difference in brand equity to those pairs
with less difference in brand equity. The degree of difference in market efficiency then could
be compared proportional to degree of difference in brand equity. Existence of any
meaningful pattern will confirm the effect comes mainly from the role brand equity and not
from any other factor. In the absence of any meaningful pattern though, adding more
variables to analysis will be inevitable.

67
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8. Appendices

70
Appendix I Top 100 Global Brands

71
72
73
 Appendix II Caterpillar's Acquisitions History
Company or Location Date Acquired From Products
Asset Acquired
Trackson
1TU U1T Milwaukee, 1951 Traxcavators (tracked
1TU U1T

Wisconsin, United loaders) and pipelayers

States
Towmotor Mentor, Ohio, 1965 Forklifts
Corporation United States
Solar Division and
1TU San Diego, 1981 nternational
1TU Industrial gas turbines
1TU U1T

Turbomach Division U1T California, United Harvester Company U1T

States

Barber-Greene Co. Minneapolis, 1991 Paving products

Inc. Minnesota, United
States
Krupp MaK
1TU Kiel, Germany 1997 Fried. Krupp GmbH Marine diesel engines
Maschinenbau
GmbH U1T

Perkins Limited
1TU U1T Peterborough, 1998 Lucas Varity Small diesel engines
United Kingdom
Kato Engineering Mankato, 1998 Rockwell Large electrical
Minnesota, United Automation, Inc. generators
States
F.G. Wilson Larne, Northern 1999 Emerson Electric Generators. Produces
Ireland Company both Cat and Olympian
branded generators
Earthmoving Chennai, India 2000 Hindustan Motors
1TU U1T Construction equipment
Equipment Division Ltd.

Caterpillar Burnie, Australia 2000 Elphinstone Pty. Underground mining

Elphinstone Pty. Ltd. equipment
Ltd.
Sabre Engines Ltd. United Kingdom 2000 Sabre Group Ltd. Marine diesel engines
Bitelli SpA Minerbio, Italy 2000 Asphalt pavers, cold
planers, compactors and
other road maintenance
products
Wealdstone Rushden, United 2004 Remanufacturer of
Engineering Ltd. Kingdom gasoline and diesel

74
 engines
Williams Summerville, South 2004 Delco Remy Remanufacturer of
Technologies, Inc. Carolina, United International Inc. automatic transmissions,
States torque converters and
engines
Turbomach SA Riazzino, 2004 One Equity Partners Supplier of
Switzerland railroad and transit
system products and
services. Owner of
Electro-Motive Diesel,
1TU

Inc. U1T

Hindustan Mathagondapalli, 2006 Hindustan Motors Engine

PowerPlus Ltd. Tamil Nadu, India components and heavy-
duty diesel engines
Eurenov S.A.S. Chaumont, France 2007 Automotive component
remanufacturing
Forestry Division of Portland, Oregon, 2007 Blount International, Timber harvesting and
Blount International, United States Inc. processing equipment,
Inc. loaders and attachments

Shandong China 2008 Wheel loaders

Engineering
Machinery (SEM)
Lovat Inc. Toronto, Ontario, 2008 Tunnel boring machines
1TU U1T

Canada
Shin Caterpillar Sagami & Akashi, 2008 Mitsubishi Heavy Construction equipment
Mitsubishi Ltd. Japan Industries
MGE Equipamentos Diadema, So 2008 Railroad equipment
& Servios Paulo, Brazil remanufacturing
Ferrovirios
Gremada Industries, West Fargo, North 2008 Gremada Industries, Remanufacturing
Inc. Dakota, United Inc. transmissions, torque
States converters, and final
drives
Twin City Signal Inc. Hudson, Wisconsin, 2008 Signaling, traffic control
United States
JCS Co., Ltd. Yangsan City, 2009 Jinsung T.E.C. Co., Seal technology
Kyungnam, South Ltd.
Korea
GE Inspection Erie, Pennsylvania, 2010 GE Transportation Rail inspection products
Products United States
FCM Rail Ltd. Fenton, Michigan, 2010 Rail maintenance
United States equipment leasing
Zeit Comercio e Curitiba, Parana, 2010 Automation and electrical
Montagem de Brazil equipment for
Equipamentos Ltda locomotives and other
industries
]
Electro-Motive
1TU La Grange, Illinois, 2010 Greenbriar Equity
1TP P1T Railroad locomotives and
Diesel, Inc. U1T United States Group LLC, large diesel engines
Berkshire Partners
LLC, et al.
Underground Latham, New York, 2010 Geophysical services,
Imaging United States specializing in providing
Technologies, Inc. three-dimensional
(UIT) representations of
underground utilities

Caterpillar Xuzhou, China 2010 XCMG Group

1TU U1T Construction equipment
Xuzhou Ltd
CleanAIR Santa Fe, New 2010 Customized stationary
aftertreatment solutions
Systems, Inc. Mexico, United for internal combustion
States engines
MWM Holding
1TU South Milwaukee, 2011 Surface and
underground mining

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 GmbH U1T Wisconsin, United equipment
States
Pyroban Group
1TU Shoreham, UK 2011 Fire and explosion
prevention solutions for
Ltd U1T

engines and equipment

Appendix III- (a)- Caterpillar analysis

Model Summary

Adjusted R Std. Error of the

Model R R Square Square Estimate

1 .965a
P .931 .922 .26564

a. Predictors: (Constant), VAR00002

ANOVAb P

Model Sum of Squares df Mean Square F Sig.

1 Regression 7.629 1 7.629 108.113 .000aP

Residual .564 8 .071

Total 8.193 9

a. Predictors: (Constant), VAR00002

b. Dependent Variable: VAR00001

Coefficientsa P

Standardized 95% Confidence Interval for

Unstandardized Coefficients Coefficients B

Model B Std. Error Beta t Sig. Lower Bound Upper Bound

1 (Constant) .724 .285 2.539 .035 .066 1.381

VAR00002 .074 .007 .965 10.398 .000 .058 .090

a. Dependent Variable:
VAR00001

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 Appendix III- (b)- Komatsu analysis

Model Summaryb P

Adjusted R Std. Error of the

Model R R Square Square Estimate

1 .956aP .913 .896 1.39684

a. Predictors: (Constant), VAR00002

b. Dependent Variable: VAR00001

ANOVAb P

Model Sum of Squares df Mean Square F Sig.

1 Regression 102.480 1 102.480 52.523 .001a P

Residual 9.756 5 1.951

Total 112.236 6

a. Predictors: (Constant), VAR00002

b. Dependent Variable: VAR00001

Coefficientsa P

Standardized
Unstandardized Coefficients Coefficients

Model B Std. Error Beta t Sig.

1 (Constant) -6.067 3.278 -1.851 .123

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 VAR00002 8.597 1.186 .956 7.247 .001

a. Dependent Variable: VAR00001

Appendix IV- (a)- Intel analysis

Model Summaryb P

Adjusted R Std. Error of the

Model R R Square Square Estimate

1 .941a
P .885 .871 2.68519

a. Predictors: (Constant), VAR00004

b. Dependent Variable: VAR00005

ANOVAb P

Model Sum of Squares df Mean Square F Sig.

1 Regression 444.566 1 444.566 61.658 .000a P

Residual 57.682 8 7.210

Total 502.248 9

a. Predictors: (Constant), VAR00004

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b. Dependent Variable: VAR00005

Coefficientsa P

Standardized
Unstandardized Coefficients Coefficients

Model B Std. Error Beta t Sig.

1 (Constant) -.235 4.867 -.048 .963

VAR00004 6.827 .869 .941 7.852 .000

a. Dependent Variable: VAR00005

Appendix IV- (b)- AMD analysis

Model Summaryb P

Adjusted R Std. Error of the

Model R R Square Square Estimate

1 .717a P .514 .454 .92905

a. Predictors: (Constant), VAR00002

b. Dependent Variable: VAR00001

ANOVAb P

Model Sum of Squares df Mean Square F Sig.

1 Regression 7.317 1 7.317 8.478 .020a

P

Residual 6.905 8 .863

Total 14.222 9

a. Predictors: (Constant), VAR00002

b. Dependent Variable: VAR00001

Coefficientsa P

Unstandardized Standardized 95% Confidence

Coefficients Coefficients Interval for B

Lower Upper
Model B Std. Error Beta t Sig. Bound Bound

1 (Constant) 1.811 1.233 1.469 .180 -1.032 4.655

VAR00002 3.563 1.224 .717 2.912 .020 .741 6.385

a. Dependent Variable:
VAR00001

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